Some Australian cities set to see property growth by 2015

Australia’s sluggish residential property market is set to recover in the next three years but not in all cities, according to the latest report from business research company BIS Shrapnel.

House prices in Perth, Brisbane, Sydney and Darwin will start to show signs of growth from next year and are set to improve further in 2014 and 2015, it says.

‘A combination of higher interest rates at the start of the year, slowing economic growth, and weakened purchaser activity upon the expiry of the First Home Owner's Grant Boost Scheme, all conspired to dampen demand,’ says the report.
 
‘While there have been pockets of buoyancy in regional centres underpinned by record levels of investment in the resources sector, the flow on economic effects of this investment have not yet permeated through to the capital cities, where price growth and construction has continued to remain weak in 2012,’ it points out.

‘However, interest rates were reduced towards the end of 2011, and notwithstanding recent out of cycle rate rises, the falls in prices have resulted in affordability improving. This will be assisted by the likelihood of further cuts to interest rates in 2012.
 
‘On the one hand, questions still remain on the prospects for the boom in resource investment driving growth in the capital cities. On the other hand, affordability is slowly improving and the declines in construction are seeing a rising underlying deficiency emerge in a number of states,’ it adds.

The forecast gain in median house prices over the three years to June 2015 is expected to be as high as 22% in Perth, 20% , 17% in Sydney and 15% in and Darwin.

However the improvement is not expected nationwide. House prices in the capital cities of non-mining states will remain sluggish in the short term. For example, median values in Canberra are forecast to rise by just 1% over the next three years, some 3% in Melbourne, 5% in Hobart and 9% in Adelaide.

Author of the report, Angie Zigomanis, believes that while consumers remained nervous about the general economy, the next three years could see a surge in the number of first time buyers entering the market.

‘The improvement in affordability from lower interest rates may stabilise house prices in this environment. However, without any supply pressures, median house prices in Melbourne, Adelaide, Hobart and Canberra are forecast to show little change and decline in real terms over the next three years,’ he said.

‘The increased investment and spending in the mining and related sectors of the economy should increasingly flow through to the domestically focused non-mining sectors of the economy, leading to stronger employment growth,’ he explained.

‘The increased confidence is forecast to encourage more first home buyers into the market and existing occupiers to upgrade. Investors should also increasingly enter the market once there is evidence that prices have bottomed out, and will also be supported by solid rental growth,’ he added.