In 2015, property investors across Australia had all eyes on Sydney. In 2016, they were grappling with the impact of changing bank lending criteria, which was sharpened up in response to fears of a real estate price bubble.
So what can investors expect as a guide to the upcoming market in 2017?
Lending criteria will continue to hurt
To look forward, we first need to understand what has happened historically, and the last 12 months have certainly been an interesting ride.
The action on behalf of the major banks to impose harsher lending criteria on investors – which has seen landlords across the country pay up to half a percent more than owner occupiers – was all about taking the wind out of Sydney’s price growth sales.
To a degree, it worked, as Sydney property price growth has slowed. However, the Harbour City still recorded strong capital appreciation in 2016. According to CoreLogic data*, Sydney’s median increased by around 15.5% 2016, with more growth in the housing market (16.75%) than in apartments (9.65%).
Will this robust growth continue in 2017? Experts are divided on this. While some believe that Sydney will keep on trucking along, most expect that Sydney’s performance will abate and will wind back to around 5% growth this year.
Either way, one thing is for certain: property affordability is at an all-time low, and lending criteria will continue to tighten in an effort to correct this.
Interest rates are going up
If you thought lenders were fussy in 2016, then that was nothing on how prudent and risk averse they may become in 2017.
Some investors have reported upwards of three separate bank-led interest rate hikes last year, and there are almost certainly more on the cards this year.
Here’s why: Homes are unaffordable. Therefore, banks will increase interest rates to make property even less affordable and accessible, thereby reducing competition and constraining property price growth.
It’s an interesting concept, isn’t it? Making something more expensive, to ultimately make it more affordable?
It may sound counter-intuitive, but this course of action may be precisely what we can expect in the year ahead. When even the International Monetary Fund believes property affordability has become a major issue in Australia, you know that drastic action is on the cards.
Apartment oversupply fears addressed
For the majority of 2016, expert after expert was quoted warning us of an impending apartment oversupply, which was set to decimate the market.
So far, the much-discussed apartment glut hasn’t crushed the market yet – and in fact, concerns about oversupply may be addressed in 2017, as construction declines are expected across the year.
Property research forecaster BIS Shrapnel predicts a 6% fall for 2016-17 in building commencements, followed by further national declines in 2017-18.
Interstate investing on the rise
The Australian love affair with Sydney property has to come to an end and 2017 may just be the year for the official break up.
Having enjoyed double-digit price growth for the last few years, Sydney property investors have been thoroughly spoilt.
When that growth starts to constrict in 2017, investors are going to look elsewhere for stronger returns, prompting them to move their investment dollars outside of Sydney.
Many pundits are predicting that south east Queensland will capture a big chunk of those investor dollars in the lead up to the Commonwealth Games, although Melbourne may just give Brissie a run for its money.
Did you make any money and property resolutions for 2017? If not, it’s not too late! Check out our top 10 resolutions for inspiration >>
Source: * CoreLogic RP Data Daily Home Value Index: Monthly Values – 31 December 2016