- The latest quarterly outlook for Australia’s housing market from consulting firm RiskWise Property says the three main risks are credit restrictions, housing affordability in larger markets, and unit oversupply.
- South-East Queensland is an area well-positioned for future growth, while large swathes of the WA market remain high risk.
- High-end properties in NSW are more at risk in that state, yet housing affordability remains a key issue.
While the Sydney and Melbourne markets are leading Australia’s current housing downturn, strong population growth and an ongoing supply shortage will see both cities deliver “solid capital growth” over the longer term.
That’s one of the findings from a quarterly report by RiskWise Property Research assessing the market risks for houses and units, based on 30 risk factors that are grouped into seven investment criteria including economic fundamentals, lending restrictions and population growth.
Each market is given a colour-coded “risk rating” ranging from low to extreme.
Here’s how your state compares:
For areas in green, “there is only a low risk that this properties in this area will not return an increase, on average, by at least 3% a year in the next two years”, RiskWise says.
Conversely, areas in red could see prices falls of 10% or more over the next two years.
As the table shows, only a small number of key factors relating to the Australian property market are currently deemed low-risk.
RiskWise said the top risks currently facing the market are housing affordability, lending restrictions and unit oversupply.
“Credit restrictions, in particular, have had a direct impact on the Australian housing market, mainly from the second half of 2017,” RiskWise said.
Lending limits imposed by APRA have given rise to a sharp decline in loans to investors.
In addition, “the Royal Commission is likely to recommend increased scrutiny of expenses in relation to mortgage applications, while reducing reliance on Household Expenditure Measure (HEM) benchmarks”.
Housing affordability has also had a negative effect on the Sydney and Melbourne markets, while “a large number of areas in Australia are experiencing unit oversupply”.
The Risk Map for units in each state:
The outlook for housing is brighter, with Queensland and Victoria both deemed low-medium risk while Tasmania — currently Australia’s strongest housing market — considered low-risk.
Here’s a summary of the RiskWise outlook for each state and territory:
NSW: Volatility in the near-term due to uncertainty around investor activity. Housing affordability is a key weakness, but NSW strong economic fundamentals. Expect big differences across different areas, with high-end properties more at risk.
Victoria: Significant deceleration recently but outstanding population growth and strong jobs market will support prices. Areas including Geelong, Mornington Peninsula and the western suburbs expected to see strong growth.
Queensland: “Southeast Qld enjoys strong internal migration, particularly from NSW and Victoria. From a 30-year perspective Southeast Qld presented outstanding value compared to Sydney and Melbourne,” Peleg said. Housing markets are varied across the state while units carry an added level of risk.
SA: The economy is below average and there is a high degree of dwelling oversupply (especially units), with nearly three times the stock required to meet population growth. However, affordability relative to the eastern states will mitigate that to some extent.
WA: The worst performer due to post-mining boom economy and low population growth. “The report puts the risk at high for both houses and units. In inner-city Perth, the unit oversupply and low demand puts the risk at an extremely high level,” Peleg said.
Tasmania: Investors should proceed with caution, as the state’s growth rate over the last 12-24 months is unlikely to be sustainable. “While the short-term risk is low, there has been decelerated growth, with less buyers in the market,” Peleg said.
Northern Territory: “Houses have become extremely affordable with a price-to-income ratio of 4 (by far the lowest in Australia),” Peleg said. Poor population growth has been the main driver of weakness in NT property, and the market is expected to remain soft, particularly for units.
ACT: The ACT has the second-fastest population growth rate in Australia. Growth rates have slowed in recent months, but the ACT is projected to deliver “modest capital growth” over the next couple of years.
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