Australian house price growth is set to halve over the next two years, according to modelling from Citi, but this represents a cooling of the market, not a crash.
According to the research paper from Citi, national house price growth will slow from 10% in FY2015 to 4% in FY2016 and 3% in FY2017. The slowdown in prices will be driven mainly by the supply/demand gap narrowing from around 49,000 dwellings in FY2014 to 16,000 in FY2015, 19,000 in FY2016, and 26,000 in FY2017.
This in turn, says Citi, reflects both lower underlying demand going forward and still very high levels of supply.
While lower underlying demand will be affected by steadily declining annual population growth – the annual population growth rate has averaged 1.7% since 2006, but has recently slowed to 1.4% – falling foreign demand is also expected to hit underlying demand for Australian real estate.
According to Citi, since August, the Chinese government started to implement tougher capital outflow restrictions in a concerted effort to prop up the RMB and its foreign-exchange reserves, as well propagating its now highly effective anti-corruption campaign.
This has resulted in Chinese nationals now only being allowed to send $50,000 out of the country a year.
Citi’s modelling reveals that the crackdown on capital outflows from China could see the share of foreign purchases in total underlying demand drop back to 5-10%.