Rampant unit construction is expected to soften Sydney home price growth.
COMMON sense suggests things tend to get pricier as the years roll by — but Sydney homes are set get cheaper.
New market projections have revealed the median price of a Sydney apartment is set to fall by $30,000 over the next three years while the median house price will fall by about $27,000.
A typical Harbour City house will cost $1.15 million in June 2020, compared to just over $1.177 million today. The average unit will cost $760,000 in 2020, down from $790,000 today.
The price falls will turn Sydney into one of the weakest capital city housing markets — house prices are set to rise in every other capital apart from Darwin, according to the QBE Housing Outlook 2017-2020 report.
Unit prices, meanwhile, are forecast to fall in every capital outside of Hobart, Adelaide and Canberra due to rampant apartment construction creating an oversupply of housing.
Sydney will be one of the weaker housing markets over the next three years. Picture: Dylan Robinson
The 3.8 per cent drop in Sydney unit values will be greater than the 0.2 per cent drop predicted in Perth unit values, but less significant than the 4.8 per cent drop for Melbourne units and 7.2 per cent drop for Brisbane units.
Weaker activity from investors, who had dominated the market in recent years, would hold the key to Sydney unit prices falling, according to the QBE report.
“Capacity for investors to enter the market or pay higher prices is limited. This will put downward pressure on unit prices as investors retreat from the market,” the report said.
QBE Lenders’ Mortgage Insurance CEO Phil White said fewer investors would give owner occupier buyers a better chance to get into the market.
More units for sale will give buyers increased choice and remove pressure to bid up prices.
“With more lending restrictions impacting investors, it could be good news for owner occupiers as they should find less competition from investors,” Mr White said.
Increased home building in Sydney, while not as significant as in Melbourne and Brisbane, has also taken momentum out of the market, preventing a further boom in prices.
One of the factors that drove Sydney home prices so high over 2012-2016 was a massive housing shortage brought about by little residential construction from 2005 through to the years following the GFC.
That shortage still exists but is not as large as it once was. QBE forecasted that in 2020 Sydney will only be short of 12,900 homes needed to account for underlying housing demand, down from a 39,300 shortage at June 2017.
Melbourne price gains will overtake Sydney’s in the years preceding 2020.
The shortage of homes in 2020 would prevent a major collapse in prices but would not be enough for some of the price gains of recent years to continue.
Another factor limiting prices from growing at high levels over the coming years is that they’re simply too unaffordable for most buyers, Mr White said.
“Recent low affordability in (Sydney) should stop purchasers from taking larger mortgages and bidding up prices even more,” he said.
The apartment sector will play a growing influence on the nation’s property market over the coming decades, Mr White added.
The shortage of housing which helped push up Sydney prices in recent years will be eroded by the long pipeline of new housing projects.
“With so many Australians priced out of the housing market, the Australian dream of owning property is increasingly turning to high and medium density apartments,” he said.
“Units contribute to a greater share of the market as changing lifestyles and affordability dictate property choices … Encouragingly, that dream should become a reality for more Australians, with improving affordability overall.”
Reposted from Daily Telegraph