October 26, 2017

High-rise future predicted as apartment prices drop

THERE’RE mixed signals for Aussies wanting to buy, with apartment prices predicted to drop even as house prices rise.

Apartment prices are expected to fall in many cities

THE Australian dream of home ownership is set to change forever — as we enter the era of the high rise apartment buildings. Startling new projections show a glut of apartments is likely to see unit prices fall in the majority of Aussie cities, which is good news for young people wanting to live close to the action and where they work

But, the same report released by QBE Insurance today shows house prices are expected to surge in our major cities over the next three years.

“If you’re a young person wanting an acre of land and a swimming pool, this is not good news,” said QBE Lenders’ Mortgage Insurance CEO Phil White. “But if you’re a first-time buyer looking to get your first foot in the market, this is very promising because unit prices look like they could drop in Sydney, Melbourne and Brisbane.”

House prices are tipped to rise in every Aussie city except Sydney and Darwin

However, massive surges in house prices are still predicted in some cities such as Canberra, which could see rises of more than 16 per cent from 2017-20 — along with Melbourne (10.2 per cent), Brisbane (7.1 per cent) and Hobart (10.8 per cent).

Sydney bucks the trend in the projections, with the Harbour City’s house prices expected to fall by around 0.2 per cent — meaning the median house price would be $1,178,000 in three years’ time. Darwin is also expected to see a drop of just under one per cent.

The picture is less rosy for apartment owners, with unit prices set to fall seven per cent for Brisbane, Melbourne five per cent and Sydney four per cent.

QBE predicts the demand for units is expected to weaken largely due to tighter investor lending standards impacting investors.

Mr White believes this softening of unit prices will play a growing influence on the nation’s property market over the coming decades.

“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.”

In Melbourne, house prices are forecast to rise by 10 per cent but apartments may become cheaper.

Units now account for 46 per cent of all residential construction across the country. This means major cities, particularly Sydney and Melbourne, are being redesigned to include thousands of high-rises and hundreds of thousands of units.

But, Mr White believes this level of home construction is needed to house Australia’s additional 6.5 million people over the next 15 years. “We need to be building around 190,000 homes a year to keep up,” he said. “Last year, Australia built around 215,000. That’s a good year, but we have to keep it up.

“The forecast population growth raises questions about whether our property market will have us on track to meet short, medium and long-term population challenges. Careful planning for housing stock and infrastructure is imperative.”

The new report also forecasts Sydney, Melbourne, Adelaide, Perth and Darwin to become more affordable in the next three years. But Hobart and Canberra are expected to become less affordable to June 2020.

Australia will have to keep building to keep up with a projected population increase

“Recent low affordability in Sydney and Melbourne should stop purchasers from taking larger mortgages and bidding up prices even more,” Mr White said. “With more lending restrictions impacting investors, it could be good news for owner occupiers as they should find less competition from investors.” First home buyer loans declined by less than one per cent in 2016/17, according to the report.

However, it also said overall signs of strengthening demand for first home buyers were emerging with 13 per cent more loans approved to first home buyers to the three months to July 2017 compared to the prior year.

This story first appeared on News Limited 7:05pm October 25, 2017.