The foreign-owned bank is tipping national house price growth to slow significantly next year with some price falls expected in major capital cities.
HSBC Australia is forecasting national housing price growth to slow from 7 per cent in 2016 to 2-5 per cent in 2017. The group’s chief economist, Paul Bloxham, says Sydney and Melbourne continue to show solid house price growth, while Adelaide, Brisbane and Perth are much weaker.
“We expect the housing market to cool for a number of reasons,” Mr Bloxham said.
“First, prudential settings are expected to remain tight, weighing on housing loan approvals, which are already down from their 2015 peak levels. Second, there is a significant boost to apartment supply due over coming quarters, although this varies across the cities,” he said.
“Third, we expect a pull-back in foreign investor interest, largely due to the fall in the RMB/AUD, making Australian housing more expensive for Chinese buyers and, thereby, weakening foreign demand.”
While detached house prices are expected to grow between 4 and 6 per cent in Sydney and 2 and 4 per cent in Melbourne, HSBC expects apartment prices to drop in both capital cities.
Mr Bloxham said the bank expects the oversupply in the apartment market, particularly in Melbourne, is likely to start showing through in price falls of up to 6 per cent next year.
“We doubt that oversupply in the apartment market will have much effect on the detached house market, given the lack of substitutability. Like Sydney, tighter prudential settings and a pull-back in foreign demand are expected to weigh on prices, particularly of apartments,” he said.
Mr Bloxham said Brisbane’s housing market is similar to Melbourne in some ways.
“We expect oversupply to weigh on apartment prices (-4 per cent to 0 per cent), but we see a limited effect on the detached house market, partly due to the lack of substitutability,” he said.
“A key difference for the Brisbane market, when compared with Melbourne, is that housing price growth has been far more limited than in Melbourne, which could limit the scope for significant price falls.”