Inflation, interest rates, employment and population growth will be the key drivers for property markets in 2018. These drivers are likely to create opposing forces in property markets with interest rates dampening demand and strong employment and demographic outcomes increasing demand.
Globally interest rates are likely to continue increasing, particularly as the US government issues considerably more debt. This will have a number of spillover impacts. Normalisation of interest rates and normalisation of growth is likely to happen around 2020/2021.
World stockmarkets are adjusting to increasing bond rates, with less liquidity, as money moves from stocks. Asset allocation into property will be impacted differentially around the globe, although total asset allocation is likely to reduce with increasing interest rates.
For equities, synchronised global growth will drive profits, which is a positive for equities and positive for property. Increasing Interest rates, on the other hand will dampen the market demand.
For Australia, Chinese investment has reduced, due to regulatory impacts in both China and Australia.
The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) are also making it more difficult to secure loan funding for residential projects.
The Australian economy is continuing to improve and the Australian dollar is likely to reduce in value but at a relatively slow pace.
Jobs and investment:
Strong employment growth will underpin the market over the next twenty-four months in Australia. During the transition from the resources boom, the housing market played a crucial role and the RBA deliberately stimulated the market.
The good news is that we are starting to see non-mining business investment start to pick up. With a combined strong jobs story and business investment story, the property market is likely to combat head winds caused by increasing interest rates.
Housing demand will stay relatively strong and interest rates are likely to put a cap on general price increases however specific areas are likely to record significant price growth.
The Sydney and Melbourne office markets will remain strong. Elements of the retail market are feeling pressure from Amazon. However, the Amazon approach appears to be softer than initially thought. Wider elements of the retail market remain strong, particularly those in greenfields locations. The demand for Industrial property is strong and prices and rentals have increased significantly in some areas.
From a residential point of view, total approvals will normalise at historic high levels. Apartment markets are in oversupply in specific locations for e.g. central Melbourne / central Brisbane, but well located apartments in middle and inner ring suburbs are still in strong demand. Inner city and large scale town house product in particular is in strong demand. Greenfields land supplies are tightening in many locations and land prices plus house and land package prices have increased sharply. This could cap strong demand to live in desirable greenfields locations.
There are a number of niche markets doing extremely well, including the hotel / accommodation markets and student housing, plus food and beverage.
About the author:
Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years experience as an advisor to governments and major corporate clients throughout Australia and New Zealand. For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or firstname.lastname@example.org.