Australian Real-estate sector The gloom after the boom

Team Veye | 19-Nov-2018 Australian Real-estate sector

With Banks wary, Buyers jittery and Investors pulling-out, the Australian real-estate sector has all ingredients in place for the slump to continueAnd, it has been the hottest topic of discussion for the last few weeks. About a month ago, Shane Oliver (Head of Inv Strategy & Chief Economist at AMP Capital) - one of Australia’s most high-profile economists had stated that Real-estate prices in Sydney and Melbourne appeared to be on-track for an anticipated decline of 20% and it won’t be surprising to witness a crash according to a significant rethink on the direction of the market. 

His previous estimation of a 15% drop from the peak that was likely to play out to 2020 was updated based on data in recent weeks. And, the warning came against a backdrop of an increasingly gloomy outlook for house prices that have been falling consistently in the two big cities during the last 12 months. They have slipped almost 5% in the past year, implying they could now have another 15% to go. 

At the same time Oliver had also warned that the risk of a crash could not be ignored backed by the fact that banks may overreact and become too tight and investors may decide to exit in the event of falling returns, low yields and possible changes to negative gearing
and capital gains tax and all of that appears true now. 

According to a recent report, Sydney house prices fell 6.5% over the year while in Melbourne, houses declined by 3.2%. But in Brisbane, house prices actually grew by 2.2% over the year. Over the last five years, prices headed north across the country, thanks to the low interest rates that encouraged investors and households to take on more debt. But now, the tightening of credit by the banks following regulatory intervention and the interim royal commission report, rising mortgage rates, tighter credit conditions and reduced borrowing power, have seen the house prices take a plunge. 

According to that report, average house prices in Melbourne and Sydney are forecast to fall 2.5% (Unit value by 2.1%) and 1.2%(Unit value by 3.1% ) respectively by June 2021. However, houses in all other capital cities are forecast to increase with the strongest growth expected in Adelaide and Brisbane, which are tipped to climb 12.4 and 11.3% respectively.

While the first-home buyers may welcome the plunge in prices as an opportunity to realize the dream of owning a home, the past two months have seen a considerable drop in loans to owner-occupiers, suggesting that people are happy to stay on the side-lines until the market has stabilized. In parallel, it has also got much difficult to get a loan as the major banks have tightened lending criteria and introduced stricter expense verification, lengthening the time that it takes to get approval and reducing the maximum amount that can be borrowed.

The weakening property market also had a direct impact on property listings businesses with Domain Holdings Australia Ltd (ASX: DHG), owner of domain.com.au, down 35% during the last 3 months while REA Group (ASX: REA), owner of realestate.com.au, shedding 20%. Going by the market trends, it appears that the storm in the real-estate sector is yet to settle down and it would be wise to wait for the market to stabilize before putting your plans into action.

Disclaimer

Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.

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