What will Australia’s property market look like in five years?

Now that the property market appears to have bottomed out, it’s quite obvious that just about every forecaster got the short-term outlook wrong.

While short-term forecasting can be challenging, it is far more difficult to predict what will happen long term. So, at the risk of getting it wrong, here are my predictions for the market over the next five years.

Interest rates will still be low but will edge up

Interest rates will creep up over the next five years however they are unlikely to get back to 1980s-style double digits in our lifetime.

There are a lot of reasons for this – forced savings through superannuation, ageing populations and fewer people holding the majority of wealth are just some of them. So, make those extra repayments while you can.

House prices will see another price surge

It looks like we are now at the bottom of the market and prices are starting to edge up.

Nevertheless, it will take some time for conditions to get back to price growth that exceeds 10%. This is because investors are going to take a while to come back to the market and banks remain cautious.

The development industry has slowed dramatically, which is eventually what will drive price growth – too little new housing is going to be developed over the next five years and eventually this will push prices up.

Australian property will still be amongst the least affordable

Australia is one of the least affordable countries in the world, however Hong Kong takes the mantle by a long margin.

Property in Hong Kong still costs a lot more than property in Australia. Picture: Getty

Australia or Hong Kong’s position is unlikely to change any time soon.

Partly because the affordability gap between Australian capital cities and other cities around the world remains so high, but also because there is nothing to support Australian house prices dropping dramatically over a five-year period.

Asian buyers are unlikely to return to the same extent

We can see from Foreign Investment Review Board data that last year, there was a dramatic drop in people from overseas buying property in Australia.

This year, we continue to see a drop in property seekers from China on realestate.com.au.

In fact, it is the lowest level we have ever seen. At this stage, it is unlikely they will return to the same extent.

Higher levels of migration from the UK, US and Hong Kong

This is my biggest call, but right now we are seeing growing search activity coming out of the UK, US and Hong Kong.

All three countries have high levels of political and economic instability at present, and no doubt Australia’s relatively stable economy is looking pretty attractive for many people living in these countries.

People living in the UK, US and Hong Kong will increasingly be drawn to these shores for both the lifestyle and stability it offers. Picture: Getty

Does high search from a country lead to more people from that country moving to Australia?

We have certainly seen the level of activity translate from search to migration for both China and India.

While these countries are likely to continue to dominate migration levels, it is likely we will see increasing levels from the UK, US and Hong Kong.

From realestate.com.au

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