2016 was another remarkable year for residential property, so what might the main signposts be when looking to navigate the market in 2017? With the wisdom of hindsight and close observation of the market, I do not think there will be a single universal trend.
I do suggest that the market will continue to trend in a number of key bands, sensibly and logically based around location, product type and quality and finance. For developers, buyers and marketers I suggest we all need to keep a firm eye on all of these key areas with the following observations.
Interest rates: Interest rates will increase during 2017, it’s a trend that’s already evident, no matter if the increases relate to general economic policy or simply to protect bank revenue and profits, this trend will sway buyers, both investors and owner-occupiers and will also impact developers. Tougher loan conditions will also be aligned to higher rates and in combination will influence the market sentiment.
Understanding such an environment will be a priority for developers, while buyers would be well advised to always seek professional help when seeking a new loan or re-finance. We have already seen the end of historically low home-loan rates and tighter finance markets will eventually start to impact supply. However, it’s market sentiment that we need to watch carefully as signs of negative sentiment can soon translate into more selective activity.
Supply: The supply of new land estates, homes and apartments still looks positive, but there are indications, despite a small rise in November, that the peak of recent activity has already past. If, as anticipated, supply starts to slow, and as population growth continues then from 2018 onwards this trend may have a marked impact.
Supply is a complex issue, the lead time is considerable, in many cases overly excessive, and even as supply peaked with big increase during 2015- 2016 we did not see any real impact on prices, with only modest falls in heavily over-supplied pockets of the apartment market.
Infrastructure: This remains a central issue, and the big investments being made is driving a lot of economic activity. According to estimates published in the Australian Infrastructure Audit Report between 2003-2013 spending will total $295b and is estimated to increase to $376b by 2031.
The ‘hi-vis’ economy associated with infrastructure project delivery is driving a massive amount of activity. However, for the wider community infrastructure also remains very important to the appeal of many locations and projects. Some major projects like Sydney’s second airport have the potential to re-shape entire regions. Potential poor delivery or budget overruns on projects will have negative impact.
Tax reform: The issue of tax reform in all of its various formats has been an urgent topic for many years, the ongoing debates about taxes directly related to property, including stamp duty and negative gearing urgently need to be resolved. Wide-spread tax reform is a must, not least because the tax-take from property is such a big factor in the cost of new homes and development. High taxes have a direct impact on prices and more equitable taxes and better planning will help affordability much more then endless commentary. The idea of tax reform linked to more direct buyer assistance also has merit.
Buyers will focus on quality: In markets that are very active, with lots of competition among buyers, like we’ve recently seen in Sydney, there can be a drop in quality. I would describe quality in terms of both the development marketed, the finished apartment product, the attention to detail from developers, and also in the level of service buyers encounter. There’s been some suggestions that over recent years there’s been a ‘take it or leave it’ attitude evident in pockets of the Sydney market.
This year I think that quality, in all of it’s aspects will be more important than ever. Buyers will be looking for quality in location, design, building and service as price sensitivity becomes more wide-spread.
Off-shore demand will continue: The Chinese Horoscope for 2017 is the year of the Fire Rooster starting on January 28. For some 2016 meant exhaustion from the shenanigans of the Monkey year, with surprise after surprise, and few of us could argue about that. Following upon the last 12 months of the hyperactive Monkey, the year of the Fire Rooster is predicted to bring fresh challenges requiring quick wit and practical solutions! The question is, will that same tactic apply to property, chances are it may well do, as a sharp wit and being practical look like good qualities in 2017.
However, leaving behind the possible fate of the horoscope I expect demand from off-shore buyers to continue and this is despite the various additional levies and charges introduced last year. Demand from this sector is heavily lifestyle driven and given the huge wealth to our north we only need to attract a small percentage of those potential buyers and so I expect that off-shore demand to remain.
Prices will moderate but not fall: A number of key factors will continue
to drive prices, and these include strong population growth, continued strong demand, partly fueled by low interest rates and a prolonged demographic trend where more and more baby-boomers settle their futures.
I also suggest that prices will only moderate if supply increase across all sectors, and such a general trend is not anticipated or even possible. In some tightly held if limited areas we will continue to see above average growth a fact that is further reinforced by pockets of very strong rental demand, evident in areas such as Sydney’s inner-west.
Summing up: There’s an entire range of factors that we need to keep under review in 2017. Will there be one big over-riding trend that sweeps the market along?
Personally I do not think so, the residential property market is very diverse, we have seen several decades of lifestyle driven change and the market now operates in many different segments. However, I think more than ever strategic, intelligent and comprehensive marketing will be key, no matter the project or demographic involved.