Australian property markets have experienced some significant changes in 2017. It started with a boom but ended slowly. Foreign investments have dampened as non-residents’ stamp duty and capital gains taxes were increased along with other disincentives.
APRA has slowed down investment lending through restricted interest-only lending and stricter serviceability criteria. The Federal budget has also changed depreciation laws, eliminating depreciation allowances on chattels already in use when purchasing established properties.
Last year, first home buyers came back with over 94,000 first homes purchased in Australia – a 5.6% increase largely because of First Home Owner incentives in some states. Sydney house prices have remained flat and boom in auction clearance rates fell to normal levels. Notably, some states may have an increased oversupply of apartments, particularly in and around the CBDs.
In 2017, combined capital city values increased by 5.5% while combined regional market values increased by 4.2%. Property price growth was sluggish with dwelling values only 5.2% higher – half the growth rate of 2016. Melbourne and Hobart saw over 10% of value growth while Perth and Darwin saw lower values.
Sydney property apartment values outperformed houses at 6.5% versus 4.4%. Sydney properties have remained flat but while investors are still waiting to see what happens, there is still no evidence of a crash. Strong economy, population growth and foreign investments may still drive growth.
Melbourne, on the other hand, had a strong year due to a strong population growth and economy with more jobs than anywhere in Australia. Its house market has performed better than its apartment market but the latter is doing better because of the First Home Buyers Grant. 144,400 new residents took most of the state’s CBD apartments but the best investment location remains in the inner east, south east and inner northern suburbs.
Meanwhile, the Brisbane property market only increased 2.4% but because it is a lot cheaper than Sydney and Melbourne, it still has great potential for growth. Brisbane’s market is fragmented and there are good investment prospects for young families.
There are impressive infrastructure projects and employment and population growth that may turn into faster property market growth. However, there’s a huge oversupply of new high rise off-the-plan apartments in the inner city and nearby suburbs that owners start giving incentives because of increasing vacancy rates. Some are now reselling at losses.
Perth property prices have dropped by 2.6% and buyers are looking for signs that it has already hit the bottom. There is a significant oversupply of new apartment developments with discounts of up to $50,000 and other complementary appliances being offered, but there still aren’t enough buyers.
Mortgage rates have remained low but investors pay 60 basis points more on their mortgage than owner occupiers. Rents have increased by 2.8% in capital cities except for Darwin and Perth. Discounts are dropping but days on the market has increased from a recent low of 36 days last year.
The number of new properties advertised for sale has decreased nationally and across the combined capital cities except for Darwin and Adelaide. Combined capital city auction clearance rates have remained 65% and below.
The RBA and APRA seemed to have successfully slowed down the markets for a gradual decline. It may not be too late to purchase an investment property but it is important to carefully select the property as it will be critical for investors. The markets are diverse and not all properties will grow in value.
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