19 Sep Mozo tips Syd and Melb values to decline – Steve Jovcevski
We received a report, released by Mozo, where they are predicting property prices will decline in Sydney and Melbourne by as much as five and six percent. Mozo’s property expert Steve Jovcevski joins us to explain how they have arrived at this conclusion.
Kevin Turner: In a report released this week by Mozo, they’re predicting property prices will decline in Sydney and Melbourne by as much as five and six percent. Mozo’s property expert Steve Jovcevski joins me to explain. Steve, what’s caused you to say this?
Steve Jovcevski: Well, I mean, some of the main factors involved is the tougher lending criteria introduced by APRA, and indirectly by the Royal Commission. So APRA, about two years ago, started cutting back on investors and also interest only loans about 18 months ago. Now, that takes a little while to filter through the system and it has come through the system now. The investor portion of it was scaled back in April but the effects are still being felt.
Steve Jovcevski: So that’s probably the main, overarching one for the property market as a whole, Australia-wide. But if you look at Sydney and Melbourne, there is certain pockets of oversupply in apartments, especially in Sydney at the moment, which aren’t helping the situation. Vacancy rates as well are increasing, in Sydney especially where property prices have been affected by vacancy rates that are increasing and tenants have more choice. Therefore the rents are actually falling in some areas.
Kevin Turner: We’ve seen property prices increase in Sydney by about 85% in the last five years. Isn’t this more like maybe just a slight correction?
Steve Jovcevski: Yeah, I would say it’s a correction at this stage. And we’re just basically predicting at the moment a further 5% to go. And then we assume and we hope that there’ll be some steadying next year. But you never know. It just depends as well with the bank increases. Obviously we’ve seeing Westpac increase their rates slightly, which hasn’t helped the situation. And other banks may follow. So it’ll really depend as well on what the banks do in terms of interest rates increasing.
Kevin Turner: A lot of talk about how unaffordable property is, particularly in Sydney. But we’re seeing demand rising from first home buyers. Surely that flies in the face of that, wouldn’t you think?
Steve Jovcevski: Yeah, absolutely. That seems to be the silver lining at the moment. First home buyers have had more opportunity to get into the market. So it’s been more difficult for investors to get a loan at the moment. And owner-occupiers, there has been some incentives. Even from developers themselves where you find a lot of developers giving free stamp duty or things like that as an incentive for first home buyers to buy these properties. So definitely a positive for first home buyers.
Steve Jovcevski: But the problem is at the moment the finance side, there are more curbs in terms of the lending. Expenses basically are being scrutinised a lot more than they used to be. So all those things are difficult for all lenders. However, at the moment first home buyers seem to be benefiting the most. However, if things continue the way they are, especially with the lending side, I don’t think that will continue.
Kevin Turner: You’re predict-
Steve Jovcevski: And it might worsen.
Kevin Turner: Yeah, sorry, Steve. You’re predicting greater price declines in Melbourne by as much as 6%. How much of that has to do with oversupply and stronger lending criteria? Can you put it all down to that?
Steve Jovcevski: Yeah. I mean, the other thing to remember is Melbourne hasn’t really come down much at all. Sydney’s already come down quite a few percent. We did see a bit more of a drop in the last quarter, and the 6% is really what we’re predicting to the bottom with Melbourne. And we don’t think it’ll go any further. So that’s some of the reasons. It’s just not as far along into the correction cycle as Sydney is. And, I mean, at the moment the first home buyers market, and huge population growth in Melbourne as well, has weathered the price correction stall much better than Sydney has. But it will too decrease at some stage. And also in terms of listings, we saw 11% increase of listings from July 2017 to July 2018 in Melbourne. So there’s more supply coming on board compared to last year.
Kevin Turner: Perth, of course, has been struggling. You’re predicting that that might just have turned around.
Steve Jovcevski: Yeah, yeah. We think that it’s sort of come towards the end and the bottom for the Perth market, and it should start to go up steadily from here. No huge increases, but definitely shouldn’t be going down anymore in price.
Kevin Turner: I notice you’re saying that the growth in Hobart is going to continue. It’s been quite phenomenal, hasn’t it?
Steve Jovcevski: It’s been incredible. It’s hovering around that 12% mark year on year. Some of the key factors there are the vacancy rates, which are under 1%. I mean, anything sort of under 1% will sort of keep investors interested. And you find a lot of the investors are interstate investors from Sydney and Melbourne trying to get some value in a market that’s increasing and not decreasing. So definitely there’s still a way to go there. But we think that by next year sometime, it should start to taper off and slow down.
Kevin Turner: And what do you see ahead for Brisbane, Adelaide, Canberra and Darwin?
Steve Jovcevski: Yeah. So Canberra’s continuing, we believe, to increase. Relatively affordable compared to Sydney and Melbourne, and there’s a larger proportion of high income earners. It’s continued to increase solidly and there are low vacancy rates as well. And there’s always a demand for rental accommodation due to the transient government employees that come in and out due to the Federal Government being there and parliament. So, yeah, we’re seeing the next six months prices to increase by about three and half percent. So it will be a solid year again for Canberra.
Steve Jovcevski: And looking at Brisbane, about 2%. So we’re not seeing the huge drops that there’ve been in the Melbourne and Sydney markets that we’re predicting. Just a steady increase, although there still is an oversupply of some apartments in inner city Brisbane. And obviously they’re going to be affected by the constrained lending criteria as well. But overall they’re going to have a better year than Melbourne or Sydney.
Steve Jovcevski: So Adelaide’s steady as she goes, as she always is. It’s one of those markets that just seems to increase three, four percent a year, and I would expect that will continue because it has been doing quite well this year. And there’s still a steady sort of increase in listings. Not a huge amount of increased listings, which always bodes well for price increases. And Darwin is still bottoming out, unfortunately. We’re predicting about minus 3%. After the end of the commodity boom, it’s been steadily decreasing. There’s still an oversupply of units yet to work their way through the system and be mopped up by prospective buyers. So it’s expected that it’ll continue to decline, but at a slower pace than it has been.
Kevin Turner: Steve, thanks very much for your time.
Steve Jovcevski: No worries, Kevin.