Is the Australian Property Market Crunch Over?

Real Estate Stocks in Australia

Property is regarded as the largest asset class in the world, and for Australians, it rightly is a huge component of their total household wealth. The property landscape has attracted market enthusiasts for an ocean of reasons, besides being a value asset and one of the safest investment bets available. Moreover, housing is perhaps the biggest single investment that most people make in their lives.

In this article, we would understand the present stance of the Property market in Australia, which has been making headlines- and not for just good reasons. However, with the trends witnessed of late, is the Property crunch finally on the route to conclude? Let us discuss:

The Australian Property Market

The trade of property in Australia and the perpetual fixtures in the country form the Australian property market. It is non-uniform in nature and elevated variation of it is ideally witnessed across the major Australian cities and regional areas.

The past two years were terse times for the Australian property market, with falling prices in many cities, which is further triggered by the on-going speculation of a recession in the near future, and is likely to take retail sales down and mortgage stress up. Amid this slump, investors were perhaps the first ones to take off, when the property market began to tank a couple of years ago.

However, a silver lining has appeared since the past few weeks, with experts believing that the health of the Australian property market is looking good since it is showing signs of recovery.

The ABS Report- Residential Property Price Indexes

Last month, the Australian Bureau of Statistics (ABS) released the Residential Property Price Indexes for eight Australian cities (for June 2019). In comparison to the prior corresponding period, in the June 2019 quarter, for the capital cities, the weighted average of residential property price Index was down by 0.7% and 7.4% in the last twelve months. The overall valuation pertaining to residential dwellings in the country was down by $17,611 million to $6,610,590.1 million.

The mean price of residential dwellings fell by $4,400 to $638,900 whereas, the number of residential dwellings was up by 43,100 to 10,347,200.

Australian Property Space

(Source: ABS)

Recent Events in the Australian Property Space

After a historic fall between September 2017 and June this year, the average capital city home prices seem to have turned up again, especially after the federal election phase in May, which eradicated the threat of negative gearing and the capital gains tax discount. As real estate investors renewed confidence, an icing on the cake has been the relaxation of APRA’s 7% interest rate and RBA’s consecutive rate cuts (after a recent third one wherein RBA cut interest rate by 0.25% and the current interest rate stands at lowest level of 0.75%).

Investors and industry experts need to be aware of the recent and optimistic developments in Australia’s property market, as the property plummet does seem to finally evade:

  • Australian regulators are growing more comfortable with housing prices as financial stability risks caused by falling prices subside, and Sydney and Melbourne house prices lifted in August (by 1.5% and 1.3%, respectively).
  • Post the interest rate cuts, banks have been thriving to increase customers’ borrowing capacity in the past few weeks, as they lowered its floor interest rate, making it relatively easier for Australians to take out a loan for property.
  • More recently, in the first week of October, Data house CoreLogic notified about a 1.7 per cent surge (over the month) in home values in both Sydney and Melbourne in September — the third month of progress.
  • Experts believe that housing values are now consistently tracking higher, at least at a macro-level, giving buyers an edge of improved housing affordability.
  • Besides capital cities, most of the regional markets recorded a rise in September 2019.
  • The benefit of low mortgage rates, improved access to credit, economic and demographic conditions has been optimistic.
  • Moreover, with population growth increasing and lowering of the unemployment rate along with steady jobs growth, Australia is providing a consistent platform for housing demand.
  • Investor participation has noticeably increased, and first-time buyers have been eyeing ways to break into the market.
The Expert Opinion

With a surge in buyer sentiment in the recent months and corresponding price uplifts in Sydney and Melbourne, conditions in the Australian Property space seem to be ripe for investors to pile back in, as per industry experts. The reforms to negative gearing and capital gains taxes, eased mortgage rates and crunching cash returns has opened up positive gearing options.

It is believed by some that amid the risks building for the Australian economy indicating stiff headwinds for the housing market, these events are the silver lining one should ideally look at, as property markets bear the potential to turn the course of slumped phases.

Auction clearance rates should not be ignored, when discussing the property scenario, and these are continuing to track around the mid-to-high range with the results remaining high on larger volumes. This is a direct indicator that consumer attitudes are getting better with increased fuel spending, even though debt levels have been at record highs. However, one should be aware that the housing market is highly sensitive and vulnerable in nature.

Is the Property Crunch Over?

As we discussed the pros of the recent property landscape in the country, the risks and cons hovering over the subject should not be ignored. A few market analysts believe that even though one should take a sigh of relief with the improvements in the recent times, the effectiveness of RBA’s quantitative easing and other tools could be limited, catalysed by the existing abundance of money supply. The policies might encourage people to take greater risks which would consequently inflate the housing bubble.

Besides this, if the country were to then enter the speculated recession, value of riskier assets would drop and stimulating the Australian economy would be a dicey affair, as the demand for the Australian dollar would decrease.

It is safe to conclude that the Australian housing market is undergoing a lot of changes on the consumer, investor and regulatory front. On one end, rate cuts, the election and a modest regulatory relaxation are a good sign but on the other, a fear of recession prevails, as house prices go up and down, and the market remains to be rate sensitive.

The Real Estate Performance on ASX

After the day’s trade on the Australian Securities Exchange on 10 October 2019, the S&P/ASX 200 Real Estate Sector (XRE) settled at 3,752.5, down by 0.51% or 19.3 basis points, compared to its last close.

It would be interesting to see the stance of the Property market in Australia and look at the investor sentiment deciding its course in the coming times, given the dynamic events at the micro and macro level in the economy.  


Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

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