Melbourne's Apartment Market Forecast Not So Bleak

BIS Oxford Economics have revised its earlier prediction that Melbourne will experience an oversupply of apartments, indicating that census figures showing a population growth of 109,000 more people that previously expected meant that the city would likely experience an undersupply.

In its Building in Australia 2017-2032

 report, BIS indicated that high-rise apartment construction will halve and overall building will decline 17 per cent over the next three years.

CMC Markets Chief Market Analyst Ric Spooner believes that if the current news of a big turnaround in the Melbourne apartment market is correct, it will mean a positive outlook on the Aussie dollar, Australian bank stocks and the housing construction industry.

“BIS, along with others, are consistently forecasting a glut in the Melbourne apartment market.

“They have previously forecasted an excess of 20,000 apartments across the state of Victoria by 2018. They’ve now revised this to a negligible 2,000,” Spooner said.

“The reason for the turnaround is that the Victorian population has grown by 109,000 more than previously expected.

Spooner said that if the forecast is correct, there will be far less risk of a severe downturn in housing prices and the downturn in residential construction will be shallower than forecast.

“Both these factors could ultimately change forecasts for the timing and extent of Australian interest rate increases, helping provide a base for the Aussie dollar,” he said.

“Building approvals data has been trending lower for some time as developers react to the potential for an apartment glut. National apartment approvals were down 29.5% in the year to July.

“This means that housing construction is set to be a drag on GDP growth in 2018.

“There will still be a national housing construction downturn. Housing starts are starting from a very high base and there is already an apartment over supply in Brisbane.

“However, if BIS is correct, it won’t be as severe as forecast. The resulting drag on economic growth may be less than many anticipate. This will water down one of the bears’ core concerns about both Australian banks and the Aussie Dollar.”

Wargent Advisory chief executive Pete Wargent said Melbourne’s housing market is powering on harder than ever.

“There have been many predictions of a Melbourne property crash over the past decade.

“The crash was variously [said] to be triggered by Baby Boomers retiring, China, falling iron ore prices, the mining cliff, spiralling bank funding costs, slowing population growth, apartment oversupply, budget deficits, the loss of the AAA-rating, rising unemployment, higher interest rates, the Ebola virus, and dozens of other things.

"Australia’s economy has added full-time jobs at a tremendous pace in 2017.

"However, that dream run looks set to slow a little as we head in 2018, once residential building slows down, while the inflation figure will be re-weighted for the December 2017 quarter, probably reducing the inflation rate even lower than it already is."