Sydney, Melbourne housing boom has peaked amid investor curbs, QBE says

Houses stand by the waterfront as the Sydney Harbour Bridge stands in the distance in Sydney, Australia.
Houses stand by the waterfront as the Sydney Harbour Bridge stands in the distance in Sydney, Australia. PHOTO: BLOOMBERG

SYDNEY (BLOOMBERG) - Sydney's housing boom is coming to an end, as curbs on investor lending and a raft of new developments combine to depress prices, according to QBE Insurance Group.

After surging 56 per cent in the past four years, the median house price in Australia's biggest city is forecast to remain broadly flat in the next three years, QBE said in its annual housing outlook released on Thursday (Oct 13). Sydney apartment prices are seen falling 6.8 per cent by June 2019, as slowing rental and price growth damps investor appetite for property.

The housing boom has been fueled by record-low interest rates, a growing population and a shortage of supply, locking young people out of the market. Banks have tightened lending standards for property investors after regulators pressure to avert a bubble, and some state governments have imposed stamp duty surcharges on overseas buyers.

"Prices are forecast to soften through the three years to 2019, which is likely to be positive for housing affordability," said Phil White, chief executive officer of QBE Lenders' Mortgage Insurance. "It's expected owner-occupiers, including first home buyers, will be stepping in to pick up some of this opportunity in the market."

The boom is also coming to an end in Melbourne, where the median home price has risen 33 per cent in the past four years, the report said. House prices will fall 0.6 per cent by June 2019, and apartment prices by 9 per cent, QBE said.

In Perth, which has been hardest hit hard by the decline in mining investment, the median house price by 2019 is forecast to be 10 per cent below its 2014 peak.

Brisbane home prices are seen bucking the trend, with QBE saying a lack of new supply will push prices up 6.5 per cent.

Australian fixed-income investors now cite the prospect of a housing market downturn as their biggest concern, replacing the risk of a hard landing in China's economy, according to a survey released Thursday by Fitch Ratings.

Still, only 4 per cent of those surveyed expected prices to fall more than 10 per cent by mid-2019, Fitch said. Investors also identified property-market exposure as the greatest risk to bank credit quality over the next year, with mortgages making up almost two-thirds of the big Australian banks' loan books.

There's no sign currently that the boom is ending. House prices in Sydney are up 14 per cent this year through September, compared with 9 per cent across the nation's major cities, according to CoreLogic Inc, amid a lack of houses for sale in and around the city.

Fewer investors are entering the market after banks tightened lending to landlords, the QBE report said. Investors accounted for 44 per cent of residential loans in the 12 months ended June 2016, down from 51 per cent the previous year, QBE said.

Separate data released on Wednesday suggested investor interest isn't waning yet. Investor lending has rebounded 10 per cent since April, having slumped 18.5 per cent over the previous 12 months, CoreLogic said.