Are Sydney property prices set to halve?

Beginning this year, there was a discernible trend that indicated that property prices across Sydney and Melbourne could drop to half of their current value. And for the first time in around five years, the national median house price has dropped in the last consecutive two quarters (a 0.5% decline in the March quarter following a fall in the December quarter).

Core Logic is reporting that the two-tier housing market in Sydney and Melbourne is continuing to surge, while five of Australia’s eight capital cities recorded a decline in dwelling values in June. Monthly declines of more than 1% were recorded in Darwin (-1.6%), Adelaide (-1.3%) and Canberra (-1.1%), while the falls in Brisbane (-0.1%) and Perth (-0.8%) were less severe.

As we monitor the rise and fall of Sydney house prices, drops in Australian property prices can be attributed to the following factors.

Oversupply of apartments

Property analysts have been predicting for some time that apartment prices across the country are likely to fall in many capital cities due to the recent boom in apartment building.

This boom has led to an over-abundance of apartments in many dense inner-city areas, particularly in Australia's two largest cities - Melbourne and Sydney. A settlement report by CoreLogic released in May of this year indicated that collectively, across Australia's capital cities, there were 92,102 new units due for completion in the 12 months subsequent to the reports release. Furthermore, there was an estimation that this figure would rise to 231,129 in the following two years. Analysts suggest this large volume of new property, along with the consistently growing existing stock, has led to a massive over-demand. Even if capital cities were to hit the record peak of sales historically encountered, there still would not be enough demand to meet the massive supply in the next 24 months. In Brisbane, Melbourne and Sydney, unit settlements are around double the average number of sales recorded in the past five years.

Reduction of foreign buyers

The first quarter residential property survey conducted by NAB estimated that foreign buyers now account for only 12% of the new built market, which marks a two and half year low. In December of last year, the Australian government placed stricter enforcements on foreign buyers interested in established properties. These regulations dictated that only people who are permanent residents in Australia are able to buy established properties. Moreover, if you are no longer living in an established property as your primary residence, it must be sold. These new rulings have coincided with a drop in overseas buyers from 8.6% of sales in the previous quarter to only 7.2%. This decline in foreign interest can be seen Australia wide, but is most prevalent in Victoria, News South Wales and Western Australia regarding newly constructed homes.

Essentially, the competition of foreign investors helps drive up the prices of property, but without the same levels of active investors in the current market, sellers may need to drop their property prices to meet lower demand.

Tighter lending standards

This year, Australia's bank regulator, APRA, declared that there has been a significant tightening of home lending criteria in recent years. This tightening began with an Australia-wide crackdown in late 2014, and is still prevalent today. The average maximum loan to property investors has dropped 12% and the average maximum loan an owner-occupier can borrow has fallen by 6%. This means that a larger amount of marginal borrowers are more likely to have their loan applications rejected, while those who are approved will likely be offered smaller maximum loans. However, this week we’ve seen lenders start promoting their investment property interest rates, indicating an increasing appetite to lending to property investors, particularly in Sydney.

When the market is uncertain and with home loan interest rates under constant review, it’s a good idea to get some help if you are looking to secure finance approval. 

To learn more about how Mint Equity can help you secure your next home loan approval, phone 02 4340 4847.