APRA curbs will drive apartment oversupply: BIS

Growth in house prices will slow or possibly decline over the next two years as regulatory measures and tighter credit weigh on Australia’s booming apartments market.

The report, Residential Property Prospects 2017 to 2020 by BIS Oxford Economics predicts that most undersupplied markets are set to change into oversupply as a result of tightened investor lending and growing levels of new stock. The slowdown follows a “resurgence” in house prices over 2016/17.

The group added that the excess stock should be absorbed by 2019/20 as new dwelling construction slows, however all markets will weaken in 2017/18.

BIS Oxford Economics senior manager and study author, Angie Zigomanis explained: “New apartment completions in Australia will hit a record in 2016/17, which have been largely bought off-the-plan by investors.”

“As the apartment buildings are progressively completed, most cities will find that tenant demand will not be sufficient to support rents and consequently values.”

According to the report, the whole of Australia, barring NSW which is “heavily undersupplied”, will be in oversupply over the next three years, with the unit market likely to face more challenges than the house market, as a result of APRA constraints on investor lending.

Mr Zigomanis pointed to strong levels of investor demand in NSW and Victoria as being “key” drivers in the growth of the Sydney and Melbourne markets, reasoning that as investor lending is curbed, price growth will slow.

The report identified Hobart and Canberra as the regions to experience the most house price growth between 2017 and 2020 as a result of improved population growth and high incomes in the ACT, while an oversupply in Tasmania will moderate an undersupply in Hobart, leading to modest growth.

The median house price in Sydney, however, is likely to be lower by 2020 as high rise apartments are completed and the undersupply eases.

A sharp correction in house prices is unlikely to occur as low interest rates will allow investors to make their mortgage repayments, although discounted rents to attract tenants is a possibility, the report said, adding that the oversupply will mostly be seen in the unit sector.

[Related: Housing sentiment hits record low: CoreLogic

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Lucy Dean

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