Australia Property Market Outlook in 2019: A Complete Overview

Listen to this article
Voiced by Amazon Polly

australia-real-estate-market

Do you plan to buy property in Asia?
Click here to get in touch with an experienced agent

Australia is the to-go place for people who wish to live in a stable nation, offering great education, and with a preferable climate. Foreign investors, many from China, have flooded the market and real estate prices have reached record breaking levels.

The country has never experienced a major decline and didn’t suffer much during the subprime crash 2008, when prices continued upwards. There are several interesting reasons behind this, of course.

In this article, I explain how Australia’s property market has performed the past years, about the markets in Sydney and Melbourne, what my predictions are for 2019, and more.

Topics covered in this article:

Australia’s property market in 2017 & 2018: A throwback

The property market in Australia was booming in 2017 with house prices breaking all-time high records. The millenials were even told to give up eating avocado toasts, if they ever wanted to afford a house.

According to Huffington Post Australia, the house price growth in the recent years are related to:

  • Investor activity in Sydney and Melbourne
  • Low interest rates
  • Tax incentives such as Negative Gearing (more about that later) and capital gains tax discounts

Theconversation.com has made an illustrative chart showing how housing prices have continuously been in decline, after hitting the peak in the 3rd quarter of 2017. It’s also the first annual decline since 2012.

A lower demand for homes and a tightening of lending to investors played a big role in the price falls according to the ABS Chief Economist, Bruce Hockman. Regulators have progressively clamped down risky lending, such as interest-only mortgages.

With around 40% of the Australians having interest-only mortgages, it’s a wise choice. The banks have toughen-up previously lax expense and income verification.

Why have real estate prices increased so much in Australia?

australia

In order to predict any future outcome, it’s important that we look at previous and current market regulations, and the previous history.

Below I’ve included some of the main contributors to the rapidly increasing real estate prices in Australia the past years.

Payment schemes for first-time buyers

The 2008 subprime crisis left many real estate owners empty-handed and prices fell enormously in places like the US.

One of the most notable differences between Australia and other Western countries is that Australia used a favorable payment scheme to first-time buyers, to prevent the market from any downfall.

It worked like follows: first time buyers that bought or built a new home could get AUD 14,000 in cash, while first time buyers of established (second hand) property could get AUD 7,000.

These benefits enticed people to buy more property, helping to drive up prices.

A booming Chinese economy

China had it’s grace period from 2000 – 2008 and imported vast amounts of iron ore and coal from Australia during this time, and after. This naturally boosted the Australian economy during a period when other economies suffered harder.

The economic climate plays a vital role in the real estate market. With a strong economy behind, the market continued to flourish.

Tempting tax deductions for real estate buyers

Another interesting aspect is that Australia offers tax benefits for real estate investors, referred to as “Negative Gearing”.

Simply put, if you buy an investment property and the interest repayments exceed the rental incomes, you can enjoy reduced income taxes. The baseline here is that the unit is available to be rented.

This opens up for more speculation, gaining attention among investor savvy buyers that are willing to take more risks and willing to borrow even more money to buy more properties.

Another point worth mentioning is that Australia has introduced a depreciation tax which gives landlords the opportunity to reduce their taxable rental incomes. They can do this by simply deducting 3.6% of the initial purchase price of their yearly rental incomes, allowing them to pay less tax.

With tax benefits like above, Australians and foreigners have the opportunity to buy more expensive property, propping up prices even further.

Massive inflow of Chinese investors

The Chinese have long been blamed for snapping up property at levels well above the asking prices.

Many have seen Australia as a perfect place to invest in tangible assets, considering it a safe zone. But many foreigners, especially Chinese, are now left out of the market due to new policies introduced by the Australian government.

Businessinsider.com.au has made an interesting chart showing real estate approvals for Chinese investors, we can see a clear decline. We can see that there’s a clear shift from investments in real estate, to other assets.

To summarize:

we’ve seen an almost unsustainable growth in Australia’s real estate market for years back due to tax breaks and a big influx of foreign investors, mainly from China. The market started to decline in Q3 2017 and is still in a correction phase.

How will Australia’s property market perform in 2019?

So, we’ve reviewed how the Australian real estate market has performed the past years and it’s time to check what we can predict from the market in the coming year.

You probably wonder how each city has performed individually, as this plays an important role when analyzing real estate markets, and when making investment decisions.

Properties in Sydney and Melbourne account for 40% of the total number of properties in Australia, and 60% in terms of value. At the same time, Brisbane is the third biggest city and a highly popular choice among many property buyers.

Therefore, I’ve decided to focus on these three cities in this article, in regards to preference among investors, the impact these cities have to the national economy, and more.

Let’s start and have a look at the predictions of Sydney’s property market in 2019.

Sydney property market forecast 2019

sydney-property-market-forecast

Sydney is the biggest and the most expensive city in Australia, something that applies to property prices as well. It’s not strange as it’s one of the most sought-after city to settle in the world.

Looking back and before 2017, the house prices in Sydney was up by an astonishing 85% in the five preceding years. In December 2017, the median property price hit its peak at AUD 1,179,519. That’s 17 times more than what Australian’s make yearly.

In 2018, the median house prices dropped to AUD 1,101,532, down by around 6.5 % over the year, compared to 2017.

One thing is certain: people in Australia, especially in Sydney, struggle to buy real estate at the moment, as local salaries can’t catch up with the great price increases. On top of that, with the tightened lending policies, they can no longer obtain interest-only mortgage.

The National Australia Bank predicts that Sydney property prices will continue to fall by 10% from the peak time, in 2019 and 2020. We’ve seen similar negative forecasts from other news channels and analysts.

Melbourne property market forecast 2019

melbourne-property-market-forecast

Melbourne’s property market peaked in November 2017 and experiences a soft landing after 5 years of strong growth. The average property price reached AUD 903,859, according to Domain, a bit below the average price in Sydney.

At the end of 2017, Melbourne was a strong performer compared to other capitals with an economic growth rate at 3.2% during the final quarter. The main reason behind the growth was a strong demand in real estate.

Worth mentioning is that in 2018, Melbourne’s population growth surpassed other bigger cities, with a growth rate of 2.7%. It’s closely behind Sydney in terms of population and both cities are predicted to reach the six million mark by 2025.

With the tightening of mortgage rules, Melbourne still experiences a reduced demand in real estate. The banks are ordered to do more thorough background checks of the borrower’s income and expenses, to make sure that they can afford the loans.

This new rule mainly affects investors whatsoever, not regular home buyers.

Looking back over the past five years, the median property price in Melbourne has increased by a hefty 41.5%. By comparison, household incomes increased by merely 12.4% over the past five years.

The current median annual salary in Melbourne is AUD 66,560, which results in real estate being 13.5 times more expensive than the median salary. The same as it goes in Sydney, locals struggle to afford buying houses in Melbourne.

The National Australia Bank predicts that prices will continue to drop in 2019- 2020, by around 8% from its peak. The same as it goes to Sydney, many analysts predict that the market will continue to cool down in the coming year, and perhaps in 2020.

Brisbane property market forecast 2019

brisbane-property-market-forecast

Sydney and Melbourne suffered the most due to price declines. The simple reason is that these cities have been affected by the housing boom, mainly in the past 5 years.

Even if Brisbane is the third biggest city in Australia, it has experienced a smaller increase in real estate prices, with a 20% gain in 5 years. As of October 2018, the median property price is AUD 567,376, almost half of that in Sydney.

So, with property market growth rates in decline in many places, Brisbane’s housing market is still performing fairly well by comparison.

For example, the Australian real estate agency Domain recorded that the median property price in Brisbane actually increased by 2.2% from 2017 to 2018.

Other than suffering less in the housing market, the population in Brisbane also grows. It recorded a 2% population growth from 2016 to 2017, mainly thanks to people moving from other states (parts of them might be priced out back home…).

That’s the highest population growth since 2011-2012.

The median annual salary, on the other hand, is AUD 67,860, which is close to the wages in Sydney. The dream of affording a house here is a lot more realistic. As the population steadily grows, the demand of real estate will inevitably grow as well.

With a slow and steady growth, people are confident in putting their money into Brisbane’s property market.

The NAB Group’s Chief Economist Alan Oster gives a conservative number for Brisbane’s market growth for 2019. He expects to see pretty much a flat growth rate: 0%.

If you decide to buy Brisbane real estate, you shouldn’t expect a high, or if any, capital gain.

BIS’s forecast, on the other hand, shows that Brisbane will see the strongest growth over the next three years, jumping 13%, to a median price of AUD 620,000.

Investing in Brisbane can generate good returns in the long run as more people tend to move here and the market is stable.

Is Australia’s property market heading for a crash?

australia-property-market-crash

All numbers and indicators show that Australia’s property market has experienced a decline in demand and prices throughout 2018.

Major cities like Melbourne and Sydney suffered the most by seeing a 3.5% and 6.5% downfall respectively. Prices nationwide have fallen 2% from September 2017, led mainly by these two cities.

This has caused some people worrying if the property market is heading for a crash.

Although the National Australian Bank predicts that Melbourne and Sydney will have 8% and 10 % decline from the peak prices, many other analysts and local experts share lower numbers.

Shane Oliver, the Chief Economist of at AMC capital, predicts price drops of 20% in Sydney and Melbourne, as credit conditions tighten, supply rises, and there’s a general loss in confidence.

With the negative property growth rates being shown on many news channels in 2018, sellers might have a “fear to miss out”, accepting lower offers, causing prices to further go down.

At a first glance, a correction of 20% doesn’t seem realistic.

However, keep in mind that property prices have surged in the past 10 years.

Take Sydney for example. If you bought a house before 2009, it was up 75% in 2017. At the same time, the average salaries grew by merely 16%. It’s a clear sign that many people can’t afford a to buy a house, unless they borrow more money.

The negative point here is that the demand goes down.

Another reason why the demand has fallen is due to tightened mortgage rules, causing investors who drove up prices in order to make profit in the first place, to retreat.

With fewer investors that jack up property prices, and with a lower demand, the market is considered to be in a “correction” phase that will make housing more affordable for home buyers.

Other than the property price drop, the Australian economy is still strong. Its GDP grew more than 3% and IMF believes this will continue until 2020.

As RBA’s Assistant Governor said, the Australian banks are well-structured and profitable. They have sound lending standards and many assets. When the banks are in bad finance, they could crash if something big happened, and it could cause a bigger storm.

Conclusion

Australia’s property market will continue to fall by 5-15% in 2019, and maybe partly in 2020 according to local analysts and experts.

Prices have inclined in the past years for sure and we currently see a correction phase that’s natural for countries that have experienced such a high growth. Prices will further decline to “normal” levels in the coming years, most likely, making property more available for local buyers.

Sydney has faced the biggest ups and downs, while Melbourne snaps a second place. Brisbane, on the other hand, has not been affected that much and shows slight, if none, price growths.

Although we should still observe closely, with the Aussie’s strong economy and financial institutions, the property market will most likely not crash like the US market did in 2008, but we will see a further correction for sure.

Other Australia property guides

Do you plan to buy property in Asia? Fill in the form below to get in touch with an experienced agent

We currently work with some of the most credible agents. You can get in touch with the agents we recommend by simply filling in the form below.

I want to buy property in (Country / Region)

I want to buy property in (City)

I want to buy property in (City)

I want to buy property in (City)

I want to buy property in (City)

I want to buy property in (City)

Property type

Budget range

What is your current status?

Name

Email

Phone / Skype

Country of residence

Message

This form collects your name, email and other information, so that we send can the data to the agency we recommend. For more information on where, how and why we store your data (and how you can access them), you can read our privacy policy (you find the link at the bottom of this page).

I accept that this form collects my name, email and other information.

Insert this code on the field below: captcha

Disclaimer: We receive hundreds of emails every day. Sometimes, we can’t reply you directly. We assume that you want to get in touch with the agent (or agents) as fast as possible. Therefore, we will forward your message directly to him. In this way, the agent can review your inquiry directly.

Tags:

No comments yet.

Leave a Reply

* Checkbox GDPR is required

*

I agree

[FREE EBOOK]
[FREE EBOOK]
[FREE EBOOK]
[FREE EBOOK]