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Sydney’s prices have peaked: When will they boom again?

By Monica Boyd

Despite fears of an oversupply of apartments in some markets and years of property price growth in Sydney and Melbourne, most experts expect property prices to continue to rise over the next four years, a new survey has found.

The Finder survey of 20 economists and experts found 35 per cent believed property prices would rise 10 per cent by 2020, while a further 30 per cent expected increases closer to 5 per cent.

“While there was concern about a ‘housing bubble’ or unsustained growth for some time, we’ve now seen a correction phase where the property market has softened yet is likely to go up again.”Bessie Hassan, Finder

With a significant spike in house price growth expected, Finder spokeswoman Bessie Hassan said it was “concerning for first-home buyers”.

“That said, it’s typical of the cyclical nature of the property market. In fact, a 5 to 10 per cent increase is somewhat conservative – it’s a common belief that property value doubles every seven to 10 years,” Ms Hassan said.

“While there was concern about a ‘housing bubble’ or unsustained growth for some time, we’ve now seen a correction phase where the property market has softened yet is likely to go up again in the future,” she said.

Eight of 20 experts surveyed expected prices to rise by 10 per cent by 2020, including Housing Industry Association’s Shane Garrett, LJ Hooker chief executive Grant Harrod and BT Financial Group’s Chris Caton.

Bank of Queensland’s Peter Munckton, Raine & Horne chief executive Angus Raine and St George Bank senior economist Janu Chan thought prices were more likely to rise by 5 per cent.

Already, the winter 2016 season is off to a stronger start than expected with Sydney house prices surging 3.6 per cent in May due to investor buying activity.

A quarter of the panel predicted no change, or a drop in house prices, including former ANZ economist Saul Eslake who predicted prices would stay the same.

QIC chief economist Matthew Peter and Marketing Economics’ Stephen Koukoulas were the only two experts surveyed to predict an upcoming fall in prices by 5 per cent and 10 per cent respectively.

Mr Koukoulas said the fundamental factor was a huge wave of supply coming into the market from the record building boom, particularly in Brisbane.

“Foreign investment rules can also exacerbate the amplitude of a downturn,” he said.

And then there’s the risk of changing demographics, with population growth “clearly slowing” and immigration tapering off, he said.

“Then you throw in the cyclical elements, investor lending being tightened and the weak growth in rental yield that [make investing in property] harder to justify when you’re getting a dismal rental yield,” he said.

But it isn’t going to be a collapse in property prices, he said, expecting something closer to the fall seen after the Global Financial Crisis.

“It was an ordinary fall, no panic, no melodrama,” he said.

“It was a bit of a measured fall, [home owners] hunkered down and no one got burnt. Banks didn’t have a significant change in their arrears levels. That’s the sort of rough scenario I’m thinking will be happening here.”

Mortgage Choice chief executive John Flavell, predicting a 5 per cent increase by 2020, said the fundamentals of the property market remained strong, with historical low interest rates, continued population growth generally and unemployment rending downwards.

“With that in mind, we would expect to see continued growth in property values over the short to medium term,” Mr Flavell said.

“While this rate of growth won’t be as strong as the growth we have come to expect in recent years, it is reasonable to assume that property values will continue to climb.”

Domain Group senior economist Andrew Wilson, who predicted up to 10 per cent growth, said the future would be more stable but even 3 per cent growth a year was “optimistic”.

“We don’t have the capacity to drive higher levels of economic activity, which could spur on the property market, and even if we do it won’t have the fizz it has had in previous cycles,” Dr Wilson said.

“We won’t get the 10 per cent growth every year result we’ve had in Sydney in recent years,” he said.

By Jennifer Duke

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