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Melbourne forecast to eclipse Sydney property price growth in 2016

Melbourne forecast to eclipse Sydney property price growth in 2016

Melbourne will overtake Sydney as the best-performing Australian capital city market for property price growth, SQM Research predicts.

Australian property prices will rise next year at their slowest pace in three years and Melbourne will overtake Sydney as the best-performing capital city market, SQM Research predicts.

In its 2016 Housing Boom and Bust Report, the property advisory and forecasting research house says average capital city dwelling prices will rise between 3–8% for the calendar year, down from the 9.8% growth seen in the 12 months to June 2015.

“The slowdown will occur predominantly as a result of a slowing Sydney property market, which is forecasted to rise between 4% and 9%,” the report notes.

“Melbourne is forecasted to overtake Sydney and be the best performing capital city in 2016 with a forecast rise in dwelling prices of between 8% to 13%.”

The report cites ongoing market corrections in Perth and Darwin, regulatory action taken by APRA earlier this year, a slowing Australian economy and Westpac’s recent raising of its variable home loan rates as other contributing factors to this predicted slowdown.

“One of the key risks to the housing market over the medium to long term is the looming threat of global deflation, and this is quite a danger to our markets here given the level of debt in the housing market right now, which we note has risen again against incomes over the course of 2014/2015 to be at all-time highs,” says Louis Christopher, SQM managing director.

On the plus side, however, SQM expects a low Aussie dollar, low interest rate environment and ongoing robust Melbourne property market will help protect the country from an across-the-board price correction.

Beyond Sydney and Melbourne

The report predicts while property prices will fall in the resource-exposed capitals of Western Australia and the Northern Territoty, they’ll increase in all other capital cities, ranging from growth of 2–4% in Canberra to 5–8% in Brisbane.

“We believe that Melbourne will be the outperformer of the year followed by the Gold Coast and Hobart,” says Christopher.

“Each of these respective cities are benefiting from the lower Australian dollar.”

What about rents?

SQM predicts a continued flat rental market in 2016, with expected rental growth of between just 0% and 3%. Capital city rents are currently increasing at their slowest rate on record, according to CoreLogic RP Data.

Rents will continue to decline significantly in Darwin and Perth, while Hobart is predicted to show the biggest rental growth of all capital cities. Weekly rents are predicted to be flat or go up in all other capitals, ranging from growth of -1% to 2% in Adelaide to 4–7% in Melbourne.

“We believe the threat of a massive oversupply in Melbourne has been overstated,” Christopher argues. “Indeed, our vacancy rates for that city have fallen for the year as population growth and housing formation have quickly absorbed the new stock being completed.”

Where to next?

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. The CBA Group does not accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.