How The Market Changed In 2016-17 And What Are The Predictions For 2018?


At a recent inaugural ‘The Property Panel’ event, hosted by full-service project marketing agency, RPM Real Estate Group and creative agency, Tomorrow Agency, three industry experts shared their views and insights into the industry’s biggest challenges in 2016-17 and their predictions for 2018.

Craig Yelland – Director of Plus Architecture.

How did the market change in 2016-17?


The biggest change from an architectural point of view was the fundamental shift in the market from small investor style apartments which targeted the affordable end of the market, to larger more luxurious owner occupier-style apartments. 

In addition, the government finalised its new ‘Better Apartment Standards’ policy.

From an affordability standpoint these standards will actually increase the cost of construction by about 5 percent but will offer some better features like more storage and larger bedrooms for the end user.

While in theory we understand why the Better Apartment Standards are necessary, in reality the market hasn’t been designing 40sqm apartments for years – the market is more mature now and buyers are seeking out larger apartments in lieu of traditional homes, so there is an element of ‘irrelevance’ in the policy. 

What are your predictions for 2018?


Without a doubt, the demand for large, three bedroom luxury apartments will continue to rise and developers will need to bring more stock to the market that fills this demand.

The reason for this shift in demand is really quite simple – it comes back to the previous government’s Neighbourhood Residential Zone policy.

Basically, the implementation of the Neighbourhood Residential Zone policy restricted development in Melbourne’s leafy green suburbs. This then resulted in a massive spike in retail house prices as purchasers were forced to compete for the limited existing home stock in lieu of boutique apartments.

Once house prices spiked it became more affordable to purchase a three bedroom, three bathroom penthouse apartment than a typical two bedroom family home. This trend will now only become more prevalent as purchasers give up on the prospect of owning a “home” in favour of penthouse apartment living.

For example, like-for-like, you can pick up a brand new, luxury penthouse apartment for $2million or a similar-sized freestanding home for $5million. I know which option I’d be going for.

Now that we are starting to see the rollback of these zones, there will be a return to smaller boutique apartment projects but two and three bedroom stock will be far more popular than the one-bedroom investor-led apartments we have seen in the past.

Chris Moyle – Director and head of property at Westpac 

How did the market change in 2016-17?


It’s important to understand that the Banks’ role in the capital structure is to fund at low risk and relatively low margins. We’ve been hearing about the additional risks that have been added to the environment so it is logical that Bank metrics have adjusted as those risks have increased. When risks start to rise, our appetite must adjust accordingly. As we have just heard from Barry a moment ago, there were a number of factors that contributed to this increase in risk this year.

We have seen a rise in non-bank lending, where do you think this market is going?


I think the non-bank lending market will continue to mature. There is a place for them a healthy, functioning finance market and we have and continue to partner with non-banks to assist our customers. In more mature markets like Europe and the US, non-banks are a key feature of the funding environment and I can see the Australian market maturing in this way also. The conversations I have with non-banks bears-out that they are also thinking about the same risks the banks do, so it will depend on their investors’ appetite and view of the risks as to how active they are in the coming years.

APRA has released a thematic review into the banks. This is worth reviewing if you are a borrower, as it points to recommendations APRA has made to the banks that will impact on borrowing.

Westpac holds market-leading settlement data. We continue to use that data to provide insights to our clients and also to inform appetite, including with respect to FIRB purchasers. We are seeing differences in speed of settlements and default rates and this is showing correlation according to country-of-origin of the purchaser. So your bank should be sharing their intelligence and talking to you about your strategy for managing this and mitigating your settlement risk.

Andrew Wilson – Chief Economist at Domain   

How did the market change in 2016-17?


2017 was the year that Australia experienced its own version of Donald Trump’s Fake News agenda – ‘alternative facts’ were, without restraint or repercussion, circulated, reported, reprinted and presented as fact, and the media and the public alike have taken the bait.

The dreaded ‘B word’ continues to be discussed amongst media and industry commentators as it has almost relentlessly over the past few years. Yet the historical evidence clearly reveals capital housing markets with orderly growth and correction phases with price rises and falls as a product of changes in interest rates.  No bubbles.

Melbourne vacancy rates are now low and falling across both houses and units with demand for rental accommodation fuelled by Victoria’s largest ever net migration in the year to September 2016. Building approvals for homes are however now falling as demand surges with fewer recorded over 2016 compared to the previous year.

While everyone is concerned about supposed oversupply of CBD apartments and the rate of sales to foreign investors, what most commentators seem to be missing is that not all these apartments actually add to the stock of housing once completed –  for many overseas purchasers, these investments are ‘lock up and leave’ assets and are never intended to be rented out to the local market.

This means that while the media focuses on the number of apartments forecast for approval or construction, no one is looking at the relative number that is hitting the local supply chain.

Add that to the additional phenomenon of AirBnB that has taken yet another layer of stock out of the equation by allowing investors to pull their long-term rental product from the rental market and package it up for the short-term holiday stays instead.

The result is a market that is facing chronic undersupply both from a rent and buy perspective.

What are your predictions for 2018?


I don’t think we will see a rate rise of any significance if at all, with still the chance of more reductions particularly as the resource of Western Australia and Queensland South Australia continue to struggle.

In my opinion the biggest shock to the market will be the mass movement of first home buyers who will be motivated into the market by an additional kicker to their deposit thanks to elimination for many of the stamp duty burden. With a notional extra $10k in their pocket we can expect to see these buyers adding an additional $80 - $100k to the purchase price capacity of their first home, thus creating a surge of interest for anything around the $500k - $600k mark.

This means that first home buyers who were once largely focused on new off-the-plan stock, will be more motivated to jump into the established housing market post July 1, that will likely create a boom in activity not seen since the last round of government incentives just after the GFC unleashed the biggest surge in first home buyers ever recorded.

For every first home buyer entering the established market, they will be activating a second or third home buyer as a ‘changeover’ into the same market. I predict we will see a wave of property movement and correlating median price growth not dissimilar to the start of the great Sydney housing boom in 2012.

Considering all of these moving parts I think it’s almost inevitable that in 2018 Melbourne’s median house price will reach what was not that long ago unthinkable -  $1million.

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