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KPMG tips Sydney and Melbourne to recover in 2 years

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KPMG tips Sydney and Melbourne to recover in 2 years

The housing market in Sydney and Melbourne will continue to fall this year before recovering over the next two years, a new report by KPMG has predicted.

Business Jotham Lian 11 January 2019
— 1 minute read

The new report by KPMG Economics believes widespread speculation that house prices are set to go into free fall is “overly pessimistic”, but believes price declines will continue in the near term for Australia’s two major cities.

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Melbourne is expected see price growth again in 2020 while Sydney will similarly grow in 2021.

KPMG chief economist Brendan Rynne believes there is a “long-run relationship” between house prices and a variety of push and pull factors that will see price revert back to the equilibrium over the long-term.

“Our housing update shows that the tougher regulatory actions and taxation measures by both federal and state governments we identified last year have had a significant effect,” said Mr Rynne.

“A relatively high level of increases in the stock of residential dwellings in both Sydney and Melbourne, a decline in financing for housing investors, and the tightening in APRA lending standards have all combined to drag house prices downwards.

“But what we have also found is that dwelling prices in Sydney are much more sensitive to the demand created by domestic investors than dwelling prices in Melbourne. It is predominately this factor that is causing the difference in expected dwelling price growth between the two markets.”

The tighter lending space has seen accountants and their clients increasingly looking to alternative lenders for sources of finance, which is seeing specialist mortgage brokers and lenders populate the market.

Mr Rynne also believes the rising number of foreign students in Australia will help boost demand for accommodation, with approximately 30 per cent of dwellings entering the market in NSW and 25 per cent in Victoria required to accommodate foreign students.

“With now more 800,000 foreign students studying at Higher Education, Vocational Education, Schools and ELICOS institutions in Australia, and even adopting a higher occupancy rate than the average per dwelling, the accommodation demand for foreign students would have been around 87,300 dwellings in Sydney and 78,500 dwellings in Melbourne in 2018,” Mr Rynne said.

KPMG tips Sydney and Melbourne to recover in 2 years
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