Sydney, 04 April 2016- Despite softening price and slowing rental growth from the strong results in the past few years, rapid declines in value for Australian residential markets are not expected according to the latest Australia Residential MarketView report from CBRE.
CBRE Senior Research Manager, Sam Reilly, said economic growth is forecast to improve modestly throughout 2016 and stability in the labour market will significantly reduce the risk of material falls in property prices.
“However, investor markets are expected to slow as rent growth eases due to new supply entering the market,” Mr Reilly said.
CBRE National Director, Residential Valuations, Duncan Guthrie said investors should start to plan for higher interest rates and lower rates of rental growth.
“Low interest rates are not going to last forever. The cash rate is currently 2%, whereas the long term average since the 1990s sits around the 5% mark,” Mr Guthrie said.
“We expect that the Australian economy will begin to strengthen towards the end of the year which will likely raise interest rates in 2017 and beyond.”
The report highlights that when rates rise, investors must consider what the level of rental demand is likely to be at that time.
“Over the next couple of years there will be substantial additions to new residential supply. Investors will therefore need to carefully assess rental markets into which they are planning to invest and develop a long term view on investment performance in a potentially higher interest rate environment,” Mr Guthrie said.
Key capital city trends mentioned in the report include:
Building approvals will remain high in 2016 although price growth will revert to sustainable levels after the very strong results over the past few years. Affordability ceilings being reached by households, falling clearance rates and changing buyer sentiment will translate to a lower growth rate. However, Sydney will continue to perform well, as foreign investment is attracted to the city’s relatively low vacancy rates and undersupply.
Melbourne building approvals to decline over 2016 in response to oversupply. Increased supply is now having an impact on rents and vacancy rates which will be felt for at least the medium term. Capital growth in the house markets has reduced to a more sustainable level of growth, with established owner occupier suburbs seeing stability in pricing, while fringe areas are seeing softer levels of investor demand.
Queensland markets continue to experience modest levels of capital growth. Demand for residential property restricted by interstate and overseas migration is sitting well below trend. However, the Gold Coast market continues to attract higher prices from foreign investors and the Toowoomba residential market has been boosted by completion of a new airport.
The Perth market faces continued challenging economic conditions as population growth and labour markets remain subdued. Buyer caution is a major factor at present as households are unsure about job security as the state economy transitions.
Rentals have shown little growth over the past few years and although capital values have been stable, the outlook for investor demand is weakening. Population growth remains flat in South Australia, with a stronger jobs market required to stimulate higher levels of interstate and overseas migration.
The development market in Canberra remains strong with developers taking a long term view to development timeframes.
For Australian/international news or global stories, follow us on Twitter.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.