28/09/2020

Greater lender scrutiny of loan applications and spending behaviour is expected to limit the growth, say analysts.

“The governor started saying repeatedly that interest rates are going to stay lower for a considerable period of time. That has a very big bearing on the outlook for the property market.”
Dwelling values in Sydney and Melbourne finished the year up 5.3 per cent, reflecting the benefit of a surging end to the year in which values declined in the first half and then gained 6.2 per cent in Sydney and 6.1 per cent in Melbourne in the final three months alone.
But price growth outstripping wages means affordability is returning as a problem for buyers in the east-coast markets.
Were going to see a lot of global capital flow into our market pursuing core assets this year.
Brae Sokolski, MaxCap
As well, a wider selection of property coming on to the market as more vendors were tempted by higher selling prices meant the pace of price growth would ease, Ms Owen said.
CoreLogic and HSBC expect price gains this year to be less than those seen in the second half of last year. HSBC forecasts a national dwelling price rise of between 5 per cent and 9 per cent this calendar year, with Sydney values gaining between 8 per cent and 12 per cent and Melbourne values rising between 10 per cent and 14 per cent.
Sydney real estate agent Hanna Kim said inquiries in her inner-western suburb of Strathfield were strong and buyers were confident, but she agreed that even with lower lending rates, greater lender scrutiny of loan applications and spending behaviour was likely to constrain price growth.
“You could probably get away with a little less income, but the application itself is still looked at carefully,” Ms Kim said.
“They might not be testing at a higher level of interest, but equally, their bank statements, income, expenditure all those things are being checked the same as a year ago.”
Commercial assets could rise even faster. Last week’s latest ANZ/Property Council quarterly survey showed industry professionals expect the cap rate, or yield, of prime assets to contract by a further 2.7 percentage points over the next 12 months, the most confident forecast in almost five years.
Capital growth expectations were highest in retirement living assets, followed by the industrial and office sector.
“We see cap rates of 4 per cent as unprecedented and in some respects, unsustainable. Offshore they look at our market and it is still robust to what theyre seeing domestically,” said Brae Sokolski, the chief investment officer of non-bank lender MaxCap.
“Were going to see a lot of global capital flow into our market pursuing core assets this year.”
Mr Sokolski said that one new source of capital likely to enter the market was money from large insurance companies lending on commercial real estate debt for terms such as seven and 10 years, longer than the typical bank debt term of five years, and at cheaper rates.
This would push prices higher, he said.
“The more liquidity there is, the more thats likely to play into the hands of vendors,” he said.