Property professionals are no longer sugarcoating the outlook, with expectations for falling house prices and weaker buyer demand mounting as surging rents emerge as a silver lining.
The national downturn continues to drive prices down, on the back of recent tax reforms.
New data has shown that real estate professionals overall expect weaker house prices but stronger rental growth, following recent interest rate rises and investor tax reforms.
The latest NAB Residential Property Survey for Q2, conducted between 26 May and 23 June, canvassed the views of respondents including real estate agents and other property professionals.
When asked to best describe the state of their local housing market, the largest share of professionals, 33 per cent, said it was declining, up from 8 per cent in Q1.
This was followed by those who suggested the market was starting to decline (25 per cent, up from 15 per cent), while those who projected a rise fell to 7 per cent from 30 per cent in Q1.
NAB chief economist, Dr Sally Auld, said many respondents were suggesting a clear direction of travel, with softer price expectations, stronger rental growth expectations and a pullback in investor activity.
“These expectations matter because housing is an important driver of both household finances and the broader economic outlook,” she said.
Price falls to persist
According to the data, property professionals forecast a fall in price in the next 12 months of around -2.5 per cent, down from 2.1 per cent in Q1.
In two years’ time, they largely predicted prices to have dropped by -0.9 per cent, down from a positive growth of 2.9 per cent in Q1.
Tasmania was the only market where expectations remained in the green and higher over the next 12 months, 4.6 per cent, up from 3.1 per cent in Q1.
The largest house price falls were expected in Victoria (-4.5 per cent), the ACT (-4.0 per cent) and NSW (-3.2 per cent).
According to the report, the findings reflected the impact of changes to the tax arrangements for investor housing announced in the federal budget.
“Broadly speaking, survey respondents see higher rents, lower house prices and reduced investor activity as the main consequences of the changes,” it said.
“Construction costs are a significant hurdle for developers, reflecting the rise in material costs due to the Middle East energy price shock.”
Rents expected to surge
When it came to rental growth, surveyed real estate professionals had higher expectations, with projections for the next year now sitting at 3.9 per cent (3.1 per cent in Q1) and 3.5 per cent in two years’ time.
The predictions varied across jurisdictions, with Victoria leading, and Western Australia, Queensland, and the ACT accelerating on the previous quarter, while Tasmania, the Northern Territory, South Australia, and NSW slowed.
Many respondents expected the negative gearing and capital gains tax (CGT) changes to drive rents up, but any improvement in access to housing for young people was believed to be more limited.
Finally, property professionals believed the CGT reforms would negatively impact their businesses in all regions except NT, where it was expected to have a slightly positive impact.
Dr Auld said the findings highlighted that various factors were shaping the property market.
“With softer price expectations on the one hand and ongoing pressure from rents and construction costs on the other, housing-related inflation dynamics are more complicated than simply looking at house prices alone.”
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