Property prices in Sydney’s East set to grow in 2016

Depending on where you stand in the property market, you may or may not be pleased to hear that price surges are beginning to slow down. Recent forecasts from the National Australian Bank (NAB) suggest the steam may at last be leaving the national housing market, but this doesn’t mean the market is going stagnant.

The key phrase for the 2016 property market is “slowed growth” – not to be confused with a price drop. There were some predictions early last year that suggested 2016 would see massive price drops of up to 7 per cent in some Sydney areas, but this has been widely dismissed by many in the industry since then. Prices in Sydney have not dropped by more than five percent in more than a decade, and it is highly unlikely they will do so anytime soon.

The 2016 Forecast

NAB Group Chief Economist Alan Oster forecasts that housing prices are still set to rise an average 2.3 percent in 2016. This growth is less than previously forecast (talk was of 3-4 percent in 2015), but it’s still significant, adding a further $15,000 to the Australian median house price of $660,000.

This rise in property prices is supported by continued low interest rates and the fact there is still an overall under-supply of housing. As the year progresses, a new growth driver will emerge too – the services industry. The services industry is heavily represented in NSW and Victoria, as well as parts of Queensland, meaning eastern capitals will continue to grow (albeit more steadily) alongside the industry boom.

Business research and forecasting agency BIS Shrapnel is even more hopeful. In its annual Housing Outlook report, which looks forward to mid-2018, BIS Shrapnel predicts that Sydney house prices will continue to rise by 7 per cent until at least mid-2016, before tapering off to 5 per cent per year after that. Melbourne’s market is also looking good, with the report stating house prices will rise by 5 per cent until the middle of this year, before falling to 2 per cent growth per year in the following 24 months.

For the affluent suburbs of Sydney, it’s even greater news. Sydney’s west has been the star performer over the last three years, with suburbs such as Parramatta seeing massive growth of 53 percent. The high prices of inner-city areas have driven investors and first-home buyers to these areas, but this is all set to change according to Louis Christopher, Managing Director of the property data firm SQM Research. He believes investors will turn their sights to the affluent suburbs during 2016, and predicts that Sydney’s Eastern Suburbs will see house price growth of up to 13 percent in the year ahead.

Christopher is one of the many industry leaders dismissing the ‘2016 crash’ and reminds buyers that Sydney’s credentials are just too good to suggest anything other than price growth. He puts this ‘inevitable growth’ down to the low interest rate environment, low supply levels, rising employment figures and major infrastructure plans.

There is however, one exception. BIS Shrapnel predicts an oversupply in units could mean price drops for inner-city apartments.

Market snapshot

In summary, here’s what to expect from the 2016 property market along Australia’s East Coast:

  • Demand in Sydney and Melbourne will stay strong and, while there may be slower growth, there will still be an upwards trajectory.
  • Forecasters predict price rises of between 2.3 and 9 percent over the coming year.
  • Lower rental yields and stricter lending criteria may discourage buyers from making new purchases.
  • Declining investor numbers suggest further, large scale price increases are unlikely in Western areas of Sydney and in areas of the North Shore.
  • New focus will lie on the affluent suburbs of Sydney, where some house prices may grow by up to 13 percent over the year. High-priced inner-city suburbs and suburbs in the east of Sydney are tipped to be the best performers of 2016.
  • Affordability is going to be an issue for Sydney. The average household is already putting more than 40 percent of their income into mortgage repayments. Brisbane, where affordability is less strained and there is a deficiency of dwellings, is forecast to experience the fastest growth in 2016.
  • Foreign buyers will be active in most states, but the main focus will remain on Victoria. In 2015, foreign buyers accounted for more than one in four of all new property sales in the southern state.
  • Australia’s eastern capitals are experiencing confidence in the economy and, while the mining industry is slowing down, the non-mining industry is picking up. The growth in the services industry will be the main driver for growth in the eastern capitals.
  • The median house price in Sydney will be 2 per cent higher in three years, taking the median house price to $1020,118,00. The median unit price in Sydney will be 1.5 percent lower, taking the median unit price to $675,700.

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