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Post-RC tightening would dim hopes of housing recovery: KPMG

KPMG expects housing prices in Sydney and Melbourne to rebound in 2021 but warns that a new wave of credit tightening would have a “seriously negative effect” on the housing market. 

According to KPMG Economics’ Housing Affordability: Sydney and Melbourne update report, Sydney is expected to experience a peak-to-trough decline in home values of 12.9 per cent, with Melbourne’s dwelling values expected to fall 4.5 per cent peak-to-trough.

KPMG reported that it expects real median house prices to, on average, decline by 4.3 per cent in the 2019 financial year (FY19), further drop by 1.3 per cent in FY20, before experiencing growth of about 3.5 per cent in FY21.

Additionally, the consultancy firm said that it expects real median prices for other residential property (units/apartments) in Sydney to slip by 4.7 per cent in FY19, remain stable with growth of 0.1 per cent in FY20, and report stronger growth of 3.7 per cent in FY21.

For Melbourne, KPMG expects real median house prices to experience a decline of 2.0 per cent in FY19, which it expects to turn into positive growth of around 3.0 per cent and nearly 5.0 per cent for FY20 and FY21 respectively.

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Further, for other residential property in Melbourne, KPMG noted that it expects to see a larger fall in real median prices of 2.9 per cent in FY19, which it said would then rebound with real median prices increasing by 1.8 per cent and 4.4 per cent in FY20 and FY21, respectively.

Reflecting on the research, KPMG chief economist Brendan Rynne attributed recent price falls to lending controls imposed by the Australian Prudential Regulation Authority (APRA), as well as state taxation measures, which he said has a “significant effect” on the housing market.

Mr Rynne added: “There has been a falling-away in foreign interest, notably from China, and lending to domestic buyers has got stricter, while housing supply has increased.

“This is why prices have declined – but we believe that process will reach its peak over the next few months and then go into reverse later this year.”

However, despite forecasting a price recovery in 2021 across Sydney and Melbourne, KPMG noted that its forecast were predicated on current credit conditions and warned that a further tightening off the back of the financial services royal commission could prolong housing market weakness.

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“To the extent this availability of credit becomes tighter beyond what we have assumed in our analysis, then our house price forecasts are likely to be optimistic,” the KPMG report noted.

“It is important to highlight that any overreaction to the Hayne royal commission by the domestic banking sector that results in a tightening of credit more than what would be considered necessary to achieve ‘normal’ prudential lending standards could have a seriously negative effect on dwelling prices in Australia.”

[Related: Property resale profits weakest in over five years]

Post-RC tightening would dim hopes of housing recovery: KPMG
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Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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