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Balanced Market – December 2017

The Australian Scene:
As the year draws to a close it certainly appears that the property boom that much of Australia had still been riding until earlier this year has come to an end, which while negative for many, spells positive news on the housing affordability front. The upshot is likely to be a more sustainable, balanced market where some equilibrium is restored and perhaps maintained for some time, delivering respite for buyers reeling from rapidly-inflating property prices noted over recent years.

This is especially true for Sydney and Melbourne, which ranked 8th and 17th respectively on the Top 30 Prime Property Hotspots Worldwide in the third quarter of 2017, according to New World Wealth Research. In fact, Sydney is now more expensive than Tokyo, Paris, Zurich and Singapore.

Now it’s Sydney’s deflating prices pulling the country average down in the most conclusive sign yet that the boom is over. According to data from CoreLogic, in October – traditionally a bumper month for property sales – average house prices across capital cities posted no growth at all.

During that month, Sydney house prices fell by 0.5 per cent, Canberra fell a nominal 0.1 per cent and Darwin dropped by 1.6 per cent. Adelaide and Perth each posted zero growth, with this result actually an improvement over a long period of falling prices in Perth. Of the capitals, only Melbourne, Brisbane and Hobart saw property prices increase, by 0.5 per cent, 0.2 per cent and 0.9 per cent respectively.

CoreLogic’s head of research Tim Lawless attributed the low growth primarily to tighter restrictions on lending. “Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan-to-valuation ratios or higher loan-to-income multiples,” he said. He added that more expensive rates on interest-only loans were acting as a disincentive for property investors, particularly those that offered low rental yield.

However, it’s certainly not all doom and gloom. Despite the recent depreciation, house prices in Sydney are still 7.7 per cent higher than they were a year ago; Melbourne’s continued growth can be put down to a record-breaking migration rate which is creating strong housing demand but also slowing.

As a general rule, long-stable prices in non-metro regions continue to attract buyers deserting the now out-of-reach major city property markets.

The New Zealand Scene:
Toward the end of November the big news was the release of the latest Auckland Council rating revaluations which showed that almost 100 Auckland suburbs have joined the million dollar club, with their median Council Valuation (CV) $1 million or more.

Property valuation and data company Valocity noted that since the last figures came out in 2014, Central Auckland was one of the biggest movers, indicating large growth in apartment valuations. The biggest growth in city fringe suburbs occurred in Glen Innes and Point England. There was also generally strong growth in the south east of Auckland, the western suburbs and Waiheke Island. Only a handful of suburbs experienced growth below 30%, including Waterview, Rosedale and Long Bay. Interestingly, figures show that there are no longer any suburbs with a median valuation below $400,000.

This price growth is fuelled in part by migration, which is still running at a record high, although the monthly figures show this growth is starting to slow, suggesting it may have hit its peak, especially as the incoming government has undertaken to markedly cut immigration levels and limit off shore investors to only being able to purchase newly built properties. New Zealand’s net population gain from migration set a new record in the 12 months to October, with 131,644 permanent and long term arrivals in the country against 60,950 long term departures. This created a net gain of 70,694, according to Statistics NZ.

It seems likely that nationally, property sales and therefore values, will be considerably altered given the government’s planned limitations on numbers of and purchases available to overseas buyers, increased taxation of local property investor incomes and sales proceeds along with limitations on and participation in the Reserve Bank’s management of the country’s monetary policy.

While most of these measures are resultant from rampant demand and therefore price growth in a few prime markets, they will effect the entire country, possibly driving many of the regions into decline yet local price growth having been minor in recent years.

As always though, the effects of such measures take time, so those selling and then buying in the same time-span and in a similar market will not be disadvantaged.

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