Melbourne Looks Set to Outshine Sydney on the Property Ladder

IT’S the turf war that struggling househunters in Victoria don’t want Melbourne to win:-

Generations of friendly Sydney versus Melbourne rivalry has lead to heated banter about the “best” coffee, but this time it just got serious — whose property will be the priciest?

SQM’s 2016 Housing Boom and Bust Report out today suggests that while the general Australian property market is about to hit a go-slow phase, Melbourne looks set to outshine Sydney when it comes to price growth.

“We believe that Melbourne will be the outperformer of the year followed by the Gold Coast and Hobart. Each of these respective cities are benefiting from the lower Australian dollar,” said Louis Christopher, managing director of SQM Research.

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Despite predictions last week that Australian property prices were set to slump by 7.5 per cent, SQM’s 2016 Housing Boom and Bust Report forecasts that average capital city dwelling prices will rise between 3 per cent and 8 per cent next year. That’s a slowdown from the more substantial 9.8 per cent rise recorded for the 12 months to June 2015.

Melbourne homeowners could be laughing as property prices rise.Source:Supplied

Mr Christopher said it is “highly unlikely” that an across the board price correction will occur next year. He based this on the fact the Australian dollar is “likely to stay at current low levels, or even fall” as well as the low interest rate environment.

“We forecast the national residential housing market will slowdown in 2016 predominantly as a result of a slowing Sydney housing market. However we do not believe the market will record a fall in prices for the year,” Mr Christopher said.

“There might be one quarter, perhaps, where Sydney records a marginal decline. But that should be it,” he said.

Next year SQM forecasts that the harbour city will see property prices rise between 4 per cent and 9 per cent — a modest movement considering prices there jumped a whopping 18.9 per cent in the year to June 2015.

So Sydney’s slowdown makes way for Melbourne’s market to take the lead. The report tips a rise in Melbourne dwelling prices of between 8 per cent to 13 per cent.

The overall go slow of the Australian property market is attributed to an ongoing housing market correction in the resources exposed capital cities of Perth and Darwin and the APRA actions (which were announced earlier this year) of restricting credit growth.

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With the Aussie dollar at current low levels, there’s a buffer for the economy and the housing marketSource:News Limited

He said the big worry for the Australian housing market over the medium to long term is the looming threat of global deflation.

“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. This threat became all too apparent this week when Westpac lifted their variable home loan lending rate. In a global deflationary environment the risk premiums banks would require on their lending book would most likely skyrocket due to the greater threat of defaults and falling asset prices,” he said.

“For 2016 we believe the RBA has some ammunition to offset this looming risk however we are concerned of their ability to handle the issue over the medium to long term.”

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Finally, could Australian rents be getting cheaper? Picture: Phil WilliamsSource:News Corp Australia

But all this could mean some relief for renters.

“This year, it has become quite apparent that rents have slowed, possibly as a result of the lower inflationary environment. We believe there is evidence that rents will slow further in 2016 with our average capital city forecast to be 0 per cent to 3 per cent. Perth and Darwin will experience the largest falls in rents however this is just part of an ongoing trend currently being recorded in these two cities,” he said.

But renters in Hobart, Melbourne or on the Gold Coast will have to brace — these areas look set to record the strongest rental increases.

“We believe the threat of a massive oversupply in Melbourne has been overstated. 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,” he said.

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