Capital city house prices to 'bottom out': BIS Shrapnel

by Julia Corderoy11 Jul 2016
An oversupply of new homes, weakening investor demand and slowing population growth will see house prices “bottom out” in all capital cities over the next three years, according to a new economic forecast.

BIS Shrapnel’s Residential Property Prospects 2016 to 2019 report anticipates a record 220,000 new dwellings will have been commenced in 2015/16, which will translate to a peak in new dwelling completions in 2016/17. 

However, underlying demand for new dwellings per annum over the next five years will only reach 159,200, tipping all capital cities into oversupply. 

“In fact, nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand,” BIS Shrapnel senior manager and study author, Angie Zigomanis said. 

“As these projects are progressively completed, it is likely that there will not be enough tenants in a number of cities to support rents and consequently values upon completion.”

As a result, BIS Shrapnel expects all markets to “bottom out” over 2017/18 and 2018/19, with house prices largely flat or in decline over this period, Zigomanis said.

According to BIS Shrapnel, national population growth in 2014/15 was at its second lowest level since 2005/06, with net overseas migration falling from 229,400 persons in 2011/12, to 176,500 persons in 2014/15. 

In addition, moves by APRA to curb investment lending have seen investor activity weaken across all states.

The best prospects for median house price growth over the next three years are forecast to be in the Brisbane and Hobart markets, followed by Canberra, the report, released today, says.

In Brisbane, the median house price is forecast to rise by 7% – before inflation – over the three years to 2019, while the median unit price is forecast to fall by 6%. 

Hobart’s median house price is also forecast to rise by a 7%, but greater downside is expected for units as investors respond to the limited rent and price outlook. For the unit sector, prices are forecast to remain flat.

Canberra’s median house price is forecast to rise by 6% over the three year period, whilst unit prices are expected to decline by 4%.

After an estimated 59% rise in Sydney’s median house price over the three years to June 2015, BIS Shrapnel forecasts Sydney’s median house price to fall 1%, before inflation. 

With a greater reliance on investors, who at their peak accounted for more than half of residential finance in New South Wales, unit price performance is also forecast to be weaker in Sydney, with the median unit price at June 2019 forecast to be 5% lower.

“The slowing price growth will also discourage investors, who will continue to retreat from the market,” Zigomanis said.

Median house prices in Melbourne are also forecast to fall by 1% over the 2016 to 2019 forecast period, following aggregate price growth of 36% over the three years to June 2015.  

Given the level of apartment supply due to come through, BIS Shrapnel warns there is greater downside in the apartment sector, where the median unit price is forecast to fall by 8% in the three years.

“The emergence of an oversupply and potential for weakness in the state economy will increasingly place downward pressure on prices,” Zigomanis said.